Is an offset mortgage considered a mortgage deal or rip-off?

offset deals have their place but are not right for everyone.

take the worst case scenario that your lender has financial difficulties like we saw with northern rock et al, your deposits have been offset or merged with your mortgage and therefore effectively extinguished by having reduced your mortgage debt - so not lost - just not savings anymore. this isnt the case with all lenders as some offset without the savings element being a part of the mortgage so when its a separate account the above wont always apply.

setting that issue to one side you need to consider why are you using an offset, do you have large cash on the side that you need/want to retain access to with very short notice perhaps its earmarked for a building project or some other reason and when you compare the rate on your mortgage to your savings you are better off with the offset - this makes sense to consider.

but many people have taken offset mortgages because they were trendy and never really used the offset or flexible features. given that most lenders will allow overpayments of 10% without incurring a penalty (although some only allow 5% and others 20% !) and if you have overpaid will allow you to borrow back, often you will get a better underlying rate with a normal tracker.

An offset would be the desired outcome if you plan to overpay the mortgage by more than the penalty free allowance EVERY year.

this is why it makes sense to spend time with an experienced and qualified IFA such as myself and other colleagues on this site. As we can explore all of your needs and then make a recommendation that will best suit your circumstances, then as each deal is due to expire you can repeat the exercise to ensure that you continue to get the best deal for your circumstances.

you cant get all of the above from a comparison website!

there are still many benefits to the human touch and a face to face meeting!

Assuming that your lender survives then the offset mortgage as presented offers some interesting benefits around getting the equivalent of your mortgage interest rate on your savings, without tax deducted, however it is potentially dangerous.

There are a number of folk out there who managed to annihilate their savings by spending them, because they were set against the mortgage. For some people having savings linked to a much bigger debt is dangerous.

That said, it works best for those who have large capital swings, who are looking to get the best rate on large sums for a period, before spending that money again before it comes back again. For those people an offset can be fantastic value.

So to answer your question, it isn't a rip off, but it might not be a suitable mortgage deal either.

An offset mortgage is certainly not a rip-off. they are particularly useful for those who, for example, have a sum of money that they wish to keep on deposit, or have a significant income which can be paid into the offset account.

Where they fall down is that the interest rate charged on the outstanding net figure is not the most competitive, so an offset loan with an unused offset facility will become a poor deal. Any one thinking about an offset loan should also consider a flexible mortgage with overpayment, underpayment and borrow-back facility.

These mortgages are very much "horses for courses". Tipped to be the mortgage which will be taking over the world, a few years ago, unless you are good and disciplined at managing your finances, these may end up being a hindrance rather than a benefit.

The deals aren't as always as favourable as a tracker and often I've found that trackers are a cheaper option, alongside what Dr David has mentioned, that you can overpay by over 10% if you wish