QLagoon - Health, wealth and happiness

Isn’t mortgage debt a bad thing?

In the Shouldn’t I just pay off my mortgage section it was explained that retaining a mortgage can make sense when the access to cash requirements *to fund your lifestyle into retirement cannot be guaranteed from other investments or pension payments alone.

The dilemma is that the desire to pay off a mortgage and reduce the monthly outgoings clashes with the desire to retain the independent cash resources that could be used to repay the mortgage more quickly.

There is mortgage which goes a long way towards a solution to this problem – the Offset Mortgage.

Offset Mortgages – a flexible way to manage the transition towards retirement

With an offset mortgage you have a conventional mortgage loan but you can also have an associated cash deposit account which can be used to “offset” against the mortgage. You are only charged interest on the net amount outstanding – i.e. the mortgage loan less the cash deposit account.

The beauty of the Offset Mortgage is that the deposit account is independent of the mortgage loan and can be withdrawn by you at any time. Once the offset mortgage loan has been granted it cannot be recalled by the lender unless you default. What this means is that an Offset Mortgage can also be used to plan ahead towards an early retirement by building up the cash deposit fund whilst in work and drawing it back down should you need the cash in the early stages of your retirement.

If an Offset Mortgage is right for you the key is to re-mortgage into an offset arrangement when in work with your income is at its highest. Many mortgage lenders will offer an additional drawdown facility over the amount of the remortgage up to their maximum lending terms (e.g. 3 x income). It can even make sense to take this drawdown facility and put it straight back into the deposit account to give you even more cash flexibility. As the interest charged is based on the net (offset) amount this is cash neutral in terms of net costs to you.

Who offers Offset Mortgages?

Overall an Offset Mortgage, if used properly, can be a key component in your lifestyle planning. Although interest rates can be slightly higher that the very best deals for mortgage shoppers there are still some very competitive lenders offering Offset Mortgage plans : Who offers competitive Offset Mortgage Plans?

Examples of how Offset Mortgages can work

Offset Mortgages seem a complex idea which is why they haven’t yet become mainstream. Some Examples of how they could work may help you understand them better: Some Practical Examples of how to use an Offset Mortgages