A mortgage is method to secure or obtain a loan against any property, which an individual possesses. The lenders usually set the credit limit at the beginning of the process and the mortgagor may redraw unto this limit set by the lender.
Any property can be mortgaged to obtain a loan land happens to be the most common. A mortgage could be looked upon as a security for the loan being taken. The mortgage is terminated when the complete repayment of the loan has been done.
Mortgage laws are different for different countries and the method including various rules depend on the particular country. The borrower or the person who requires a loan and who mortgages his /her property is known as a mortgagor. The party, which lends loan against the mortgaged property, is known as the mortgager.
An offset mortgage is a type of mortgage used in the case of a purchase of domestic property. The offset mortgage works in a similar fashion to the current account mortgage except for the customer, different balances are completely kept separate. This type of a mortgage is useful to those people who pay huge sums of interest, as this method is very tax efficient.
This type of a mortgage also helps in using both the current and the savings to have a higher equity in their homes. Let us now see how exactly the offset mortgage is different from the current account mortgage.
In the offset mortgage three separate accounts are maintained.
1. Current account
2. Mortgage account
3. Savings account.
These three accounts are charged at a different rate or there is a possibility that the lender would charge the interests at a fixed rate or there also is a possibility that the interest would be charged in accordance to the latest market rates.
The various advantages other than those listed above are
1. It offers a very flexible method of mortgage
2. The more money one has in his current account above the monthly payment the lesser would be the interest paid on the original amount of the capital loan
3. It is a lot cheaper to get a loan from this account in comparison to interest rates that would be offered on credit and store cards.
4. This proves to benefit a lot in terms of the amount of tax savings it offers as it groups or classes the mortgage to the savings account and thus reducing the mortgage debt.
As all good things come with a condition the offset mortgage also has some disadvantage
Disadvantages of the offset mortgage are
1. To make the current account mortgage work properly and efficiently requires a lot of planning, budgeting and discipline
2. Offset mortgaging is a new field as compared to other mortgaging options and thus this so called newer version of the mortgage is limited in offer by only a few lenders.
3. The interest rate is different for the current and mortgage account hence one does not have the option to save at the standard viable rate.
James has been writing about mortgages for many years and offers information on the different types of mortgages
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