Offset Versus Flexible Mortgages

Most people are keen to save money by paying off their mortgage as quickly as possible.

Choosing an offset or flexible mortgage will allow you to do this.

But there are important differences between these two types of loan.

And if you don’t choose the one that’s right for your circumstances, you could end up wasting money rather than saving it.


The Offset Mortgage

This offsets your savings and if you choose, the cash in your current account against your mortgage debt.

You earn no interest on your money, but you don’t pay any on the equivalent amount of debt either.

This reduces your interest bill, meaning more of each monthly repayment goes towards clearing your debt.

As a result, you can end up mortgage free years early, saving thousands in the process.

To find out more, read The offset mortgage.

The pros You can access your savings (or current account cash) whenever you want.

The cons Because interest rates tend to be slightly higher for offsets than traditional deals, you need a fairly substantial savings balance to make having one worthwhile.

(For a more detailed explanation of how this works, see Why an offset can be better than a savings account and How much could I save by offsetting?)


The Flexible Mortgage

This is basically an ordinary mortgage which allows you to make regular or occasional overpayments whenever you have spare cash.

For more information, read The flexible mortgage.

The pros You shouldn’t have to pay a higher interest rate for a deal with flexible features.

The cons Some deals limit the number and size of penalty-free overpayments you can make, and once you pay the money in unlike with an offset you can’t get it back unless you increase the size of your loan again.


Which Should You Choose?

• Consider an offset if you generally have a sizeable savings balance and sometimes need access to it.

Consider a flexible mortgage if you occasionally have cash to spare and can afford to lose access to it.


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