Why Select a Fixed Rate Offset Mortgage?
There’s a lot of activity in the offset mortgage market right now as lenders try and encourage people to save, rather than spend, and there are several providers who now offer great fixed rate offset mortgage deals. But what’s in it for the borrower? Surely, the point of an offset mortgage is flexibility and the chance to allow your money to work with the economy? So why should anyone tie himself or herself into fixed rate offset mortgages ? Well, there are a number of advantages to locking into a deal now; it’s just a matter of planning for the long-term.
The answer is clear. It’s because many people like the security of knowing what interest rate they will pay over a long period. With a fixed rate offset mortgage, borrowers will know exactly what they will pay every month for the fixed rate period. There’s nothing new in that; fixed rates have been part of the mortgage scene for years. What is new, though, is that offset mortgage providers are offering these deals for longer periods, some even offer a fixed rate offset mortgage for as long as ten years.
The advantage of having a fixed rate offset mortgage deal is that your payments are fixed. Even if the Bank of England raises the base rate you will still pay the same amount. A fixed rate offset mortgage deal works well when interest rates are rising, particularly if the fixed rate is competitive, but what about when mortgage interest rates fall?
If you have a long term fixed rate offset mortgage, then even if interest rates fall you still have to pay the same amount. An alternative to a fixed rate offset mortgage is a capped rate offset mortgage, which means that there is a cap on the interest rate that will apply. If the interest rate falls, so does your mortgage payment as long as this is below the capped rate. Interest rates for a fixed rate loan will usually be less than the variable rate interest rate. Lenders are also like to reduce the rate the longer the period of the fixed rate offset mortgage. Remember to pay attention to the APR with a fixed rate offset mortgage, as this will give a better guide to the overall interest rate you will be repaying.
That aside, a fixed rate offset mortgage still offers all the benefits of offsetting. That means that when your credit balances are high, the interest you pay is less. It also means that you can overpay, underpay, pay in lump sums and take payment holidays – and there shouldn’t be a charge for this. However remember underpayments and payment holidays could increase the mortgage term and/or the total amount payable. One thing to look out for with a fixed rate offset mortgage is early repayment charges. While most offset products do not have these, fixed rate offset mortgage lenders may charge for early repayment during the fixed rate period. It’s worth having a look at these charges if you know you’re likely to switch mortgages.
