Offset mortgage

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A flexible mortgage ( Offset is the English word for set-off or netting , Mortgage translates to mortgage credit) is a form of mortgage loans , which in the UK for the financing of domestic properties but also, consumer spending is used. In contrast to the usual forms of financing in Germany, there is no mandatory repayment for this form of financing.

Features and examples

The main feature of such a loan is the ability to reduce loan interest rates by offsetting credit against mortgage debt. For example, if the mortgage debt is £ 200,000 and the balance is £ 50,000, interest will only be charged on the net amount of £ 150,000.

This is useful in various situations:

• The need for liquidity fluctuates greatly for the self-employed . With an offset mortgage, the interest burden on the mortgage is automatically reduced if a high level of liquidity is available. If the liquidity is required, he only pays the low mortgage interest instead of high interest on a current account
• People with fluctuating incomes are not obliged to make fixed repayments and even have the option to extend the claim
• This form of financing is fiscally encouraged in the United Kingdom, as the capital gains tax otherwise due does not apply to the credit interest.

Offset mortgage but also to expand the consumption possibilities analogous to a credit facility or installment loan in Germany used.

Lenders usually impose a credit limit at the start of the mortgage and allow borrowers to borrow and overdraft that amount. This limit can be adjusted to the value of the property at regular intervals. The lender can impose restrictions on the limit towards the end of the fixed interest period in order to guarantee the capital repayment. Many lenders, on the other hand, allow full drawdowns until the mortgage end date when the loan is due to be repaid. This can create huge problems for undisciplined borrowers and borrowers nearing retirement age .

Some lenders use a single account for all transactions, the so-called "current account", in German current account mortgage or "CAM". Other lenders use multiple accounts for this purpose. As a minimum there is a mortgage account and a deposit account . Often times, lenders allow multiple accounts for balances and sometimes debit balances. These different accounts allow borrowers to split their money according to purpose while all accounts are offset against the mortgage debt each day.

Offset mortgage have a variable interest rate.

Comparable offset mortgages will be introduced in the United States with modifications to the British model.