Managing your personal finance and mortgage can involve a lot of juggling with a current account, different savings accounts and of course the mortgage itself – but does it need to be so complicated? Offset mortgages bring your key accounts together, providing you with an impressive level of flexibility, a simplified outlook that can help prevent headaches and offer huge savings on interest.
What is an offset mortgage?
With a traditional repayment mortgage, the loan is kept completely separate from your day-to-day finances. Each month you make a repayment that covers any interest accrued plus a payment towards the outstanding balance of the capital. Over time your mortgage is repaid. The payment amount is the same each month if you are on a fixed rate and if you are on a variable rate mortgage then amount may differ slightly – but your personal circumstances will not alter the contracted payment required.
An offset mortgage provides a different way to look at things, combining the mortgage with your regular income and outgoings into one single account.
How does an offset mortgage work?
Think of it as the largest overdraft you will ever have! Any income you have goes into the account and lowers the amount owed, but over the month you will still have full access to your funds for your general use.
Offset mortgages and interest
For many, the main reason to consider an offset mortgage is to save on interest. With a traditional mortgage, interest is calculated based on the balance of your remaining loan amount. Any money you have elsewhere has no effect on this – it’s out of sight, and very much, out of mind for the calculation. Under the umbrella of an offset mortgage, however, all the money in the account is considered when your interest is calculated and could save you thousands of dirhams a year!
With an offset mortgage, interest is calculated daily on the amount in your account, rather than on a monthly basis. This means it more accurately reflects your current finances. So the more you have in your account, the less you have to pay in interest. Meaning, when you make your monthly mortgage repayment, more goes towards paying down your capital rather than the interest on the home loan.
The flexibility of an offset mortgage
An offset mortgage is a far more flexible option too. It is especially advantageous if you are self-employed, paid bonuses or work on a commission basis. Fluctuations in your monthly income can work to your benefit as they can cut your interest considerably. If you top-up your account this means you owe less capital and therefore will pay less in interest.
Making the most of your savings
An offset mortgage allows you to make the most of your savings. For example, if your saving account is returning an interest rate of 1.5% but your mortgage is at a rate of 3%, then keeping these funds in your offset account is a winning move when it comes to optimising the interest payments.
Further, in the case of an offset mortgage you don’t actually lose access to your savings in the way you would with a traditional mortgage if you chose to pay off a chunk. Should you wish to use your savings for another purpose at any point, you have access to that money straight away.
Offset mortgages with Mortgage Finder
For more information about offset mortgages, or any other mortgage products in the UAE, give us a call! Our mortgage specialists will be able to help you with an in-depth analysis of the options and advise you on the product that’s right for you.