Some of you may not know exactly what an offset mortgage is, so in this article we will attempt to shed some light on this subject. We will aim to define an offset mortgage and illustrate how it may of benefit to you the borrower. It will also show how you may be able to save money by reducing the amount of interest you pay on your borrowed money.

Offset mortgages can be confusing as they are a fairly complicated creature. It is worthwhile taking the time to understand them, however, as many lenders will claim to offer fully offset mortgages and in actual fact, what they are offering is not strictly speaking fully offset. By reading on, you will be able in the future to identify the truly offset mortgage from a false one.

Flexible mortgage is another term used to describe an offset mortgage. Basically the way in which this mortgage works is that all of a customers finances are handled by one institution and that any interest from the customers debts can be covered by the interest gained from his credit holdings.

This can be explained quite easily with the following example: your mortgage is valued at 100000 and your credit card has a debit of 2000. Your savings are in credit to 20000. Basically with an offset mortgage the interest accrued on your debt is covered by the interest accrued on your credit, ie your savings. If you take it that the credit card is charging 19% and you owe 2000 on it, then the interest you gain on your savings is used to cover this.

This basically means that the credit card is costing nothing in interest. At the same time, the mortgage is costing less. If you think of the remaining savings, you are basically paying interest on 18000 less than the total value of the mortgage.

There are two immediate results of this system. You can either reduce what you are paying per month, or alternatively, by maintaining the current payments you are making on both your mortgage and credit card, you will have paid off your debts in a shorter time than first anticipated.

This may it look like you have lost your savings, but that is not the case at all. All it means it that you are not earning the interest you would have been on your savings, but are instead paying a lot less interest on your debts. Your savings are still intact, but are working for you in a different way. They are not earning interest, but are instead lessening your mortgage and credit card debt.

You can even find lenders who will set up your offset mortgage in the style of a current account. Your salary paid in each month will therefore also be considered as money owned as opposed to owed and will help to offset the interest payable. You have the benefit of your wages then reducing the borrowing interest and ergo the borrowing costs.

The following example should help explain this. You have a mortgage valued at 100000 and your monthly salary amounts to 2000. If your salary is paid into your policy then this has the effect that, for however long it continues to do so, it will be deducted from the total amount you have borrowed for the purpose of calculating the interest on your mortgage. This may not seem like much if calculated on a month to month basis but when you calculate the amount you would save over a period of, say, five or ten years then the overall figure could be far more substantial than you might have thought.

As each individual has their own financial situation it will be up to yourself to assess whether obtaining a full offset mortgage would be the best option to suit your circumstances but if the answer is yes then my advise is to seek the assistance of a mortgage advisor who will be only happy to help.