What is an Offset Mortgage?Written by John Mussi
An offset mortgage is very similar to a current account mortgage - but instead of having everything all in one account, all accounts are held separately. The offset mortgage concept treats your money as one giant pot, with each element (mortgage, savings, current account etc) separate to rest. The result is basically a giant overdraft, although it behaves differently. Offset mortgages are where interest on your mortgage is reduced by funds in both your savings accounts and your current accounts. The more you have in your savings account, less interest you pay on your mortgage, which helps you to repay your mortgage faster and more cheaply in long term. Your part of deal is that you don't receive any interest on your savings or your current account. The interest is work out by taking state of each account separately and offsetting them against others so that you can benefit from your savings and pay less interest. A current account mortgage allows you to benefit in same way, except it also acts a bank account so your salary goes into same account that your mortgage is in. This is slightly different to current account mortgage because your mortgage account is separate from a savings and income account that you open with same company. Like current account mortgage, your income and savings are offset against your mortgage, which reduces what you owe. The interest is calculated on a daily basis on that reduced balance. Offset mortgages work by setting money held in savings and current accounts against your mortgage debt. So instead of earning interest on your cash balances, you pay less interest on your borrowings. The idea of offsetting is that, with less interest to pay, mortgage is paid off more quickly and as a result costs you less. Some of these mortgages can even be linked to your other personal financial commitments and arrangements. One of main attractions of these mortgages is prospect of paying less interest.
| | UK debt becoming a cause for concern Written by Richard Green
The UK attitude toward debt has received a major shift over past few years. Where once UK was seen as a nation that held up thrift as being virtue and considered debt a vice, it has now changed to owing £1.3 trillion on mortgages, credit cards and other loans. The main cause of this growth in debt is British obsession with house ownership, making up 80% of borrowing. Figures for number of repossession orders granted in first three months of 2005 have reached nearly 26,000, which is highest figure since 1995.The Consumer Credit Counselling Service (CCCS) reports that calls from people worried about debt have been increased by 50% compared with last year. The Chairman of CCCS, Malcolm Hurlston, said: "The consumer is spending less and repaying less. There are early signs here that whole consumer-driven economy may be moving into lower gear.” In past, homeowners have been main victims of previous recessions due to their reliance on credit, however, this time it seems young are most at risk. "We are seeing lots of younger people coming to us for help," said Frances Walker, from Consumer Credit Counselling Service ( http://www.cccs.co.uk/ ), "They are often very heavily in debt as they have been able to borrow far more than in past. The trouble is they have no assets, so when they get into difficulty they have nothing to fall back on." It is not only young who are being affected however, as number of houses exchanging hands each month is gradually decreasing, and high street sales are poor – traditional signs that consumers in general are beginning to suffer. With a number of UK’s main lenders, including Barclaycard, HSBC, HBOS and Royal Bank of Scotland, recently being warned about bad consumer debts, it seems that consumers need to take on more financial responsibility for themselves, rather than relying on providers to protect them.
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