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Offset Lifetime Tracker

A quick guide to offset lifetime tracker mortgages

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 20th January 2020 *

With so many mortgage products to choose from, selecting the right one isn’t always easy. While many people might have a good understanding of fixed-rate, interest-only or tracker mortgages, you might have less knowledge of offset lifetime tracker mortgages. 

One of the reasons they are less well-known is because they are a mortgage product for older home-owners who want to make use of the equity they have built up in their property.

If you’re interested in accessing the equity in your home, now or in the future, but you also want to limit the interest charged on your lifetime mortgage, then an offset lifetime tracker mortgage might be right for you.

We’ve written this article to help you gain a better idea about how offset lifetime tracker mortgages and other flexible lifetime mortgages work. In it we’ll discuss:

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What is an offset lifetime tracker mortgage?

An offset lifetime tracker mortgage allows you to release equity from your home. By using an offset mortgage, the interest your lender is charging you on the equity you release is only payable on that amount, minus however much you have saved in your designated offset savings account.

To break it down, if you just had a regular offset mortgage, you would only pay interest on your total mortgage minus how much you have in savings. 

As an example, you could have: 

  • £100,000 mortgage
  • £13,000 in savings
  • £2,000 credit in your current account (on average)
  • Only pay interest on £85,000.

In a mortgage that isn’t offset, you would be charged interest on the entire £100,000 of your mortgage. With an offset mortgage, you would only pay interest on the £85,000. 

It’s important to remember, that if you choose an offset mortgage, then you don’t earn interest on the savings that are used to offset your total mortgage amount.

However, that’s only one part of how an offset lifetime tracker mortgage works. To help you understand the benefits of this type of mortgage, we’ve broken it down.

Lifetime mortgages

Lifetime mortgage products, including flexible and tracker versions,  tend to be taken out by older home-owners as they allow them to release some of the equity they’ve built up in their home over the years of paying a mortgage.

You don’t have to pay any money back to your lifetime mortgage, but most products allow you to do so, if you wish.

The equity you take from your property through a lifetime mortgage can be spent as a lump sum or withdrawn as regular income. 

Even though you’re releasing equity from your home through a mortgage product, you’re still the owner of that property, but you now owe your lender more money than you did before taking out a lifetime mortgage.

Base rate tracker mortgages

The tracker element of a lifetime offset mortgage simply refers to the way the interest rate is calculated. Tracker mortgages track the Bank of England’s base rate. 

Typically, a tracker mortgage rate is the base rate which at the time of writing is 0.75%, plus a percentage rate of between 1% and 3%.

Offset lifetime tracker mortgage

By putting the three elements together into an offset lifetime tracker mortgage, the rate of interest you’re charged is linked to the base rate. But you’re only charged that rate of interest on the total amount of your mortgage (which includes how much equity you withdrew from the value of your home), less the amount of savings you have.

An example of how it would work is:

  • £75,000 equity withdrawn from the value of your home
  • £25,000 savings in your offset savings account
  • You’re only charged interest, which is reliant on the base rate, on £50,000
  • You don’t have to make any repayments on a lifetime mortgage as the amount still owed against your property is repaid upon your death or when you move into a home 
  • You don’t earn interest on your savings in the offset savings account

As you can see, there are a few different elements of this type of equity release product to consider. If you would like more information and the opportunity to discuss if it’s the right option for you, speak with an offset lifetime mortgage expert, like those we work with. 

Make a quick online enquiry and we’ll connect you with the right qualified specialist for your needs.

How does a flexible lifetime mortgage work?

A flexible lifetime mortgage is a type of equity release product, usually for those over the age of 55.

If you’re interested in unlocking some of the equity that’s built up in the value of your home from a combination of you making mortgage repayments and a broader increase in property prices, then this could be the right product for you.

Different providers have different rules, but there is usually a threshold amount of equity you need to have in your property to be eligible for a flexible lifetime mortgage.

Providing you meet a lender’s specific equity requirements, a flexible lifetime mortgage will allow you to:

  • Withdraw a lump sum of equity from your property
  • Withdraw future, smaller amounts of equity from your property
  • While a different rate of interest will likely apply to the different withdrawals, you don’t have to make any repayments
  • Instead, the amount of equity your take out from your property through your lifetime mortgage is repaid to your lender upon your death or if you move into residential care and you no longer live in your house

It’s also useful to know that you remain the owner of your property. That’s because it’s similar to a repayment mortgage, you own the property but the bank is lending you money against its value, to use as you wish in your older age.

Offset lifetime mortgage vs flexible lifetime mortgage

With so many different mortgage options for different stages of your life, knowing whether an offset lifetime mortgage or flexible lifetime mortgage, with or without a base rate tracker, is right for you, isn’t always an easy decision to make.

To help you, we’ve briefly broken down the pros and cons of both.

Offset lifetime mortgage

The pros:

  • By offsetting your lifetime mortgage against your savings and possibly your average current account balance, you will rack up interest on an amount that’s lower than the equity you release from the value of your property
  • This can encourage you to continue making sensible financial decisions which allow you to enjoy life, while still maintaining a good level of savings

The cons:

  • Some offset lifetime mortgages can be quite rigid and not give you the flexibility to choose how to withdraw equity from your property, or let you take money out more than once
  • If you’re in a position where you want to withdraw equity from your property while you’re still living in it, you might not be in a position to maintain a level of savings that will notably reduce the lifetime mortgage amount you’re paying interest on

Flexible lifetime mortgages

The pros:

  • A flexible lifetime mortgage is a great way to use the equity built up in your home, in a way that suits your changing needs
  • As long as the value of your property and the equity fits in with your provider’s rules, in theory, you can withdraw what you need, when you need it over a period of many years 

The cons:

  • Depending on how UK interest rates are doing, you could find smaller future withdrawals could prove more costly than you expect
  • If your circumstances change unexpectedly, you might not need the flexibility of the product but may find yourself tied in  

We’ve only highlighted a couple of pros and cons for each lifetime mortgage product but they’re certainly important details to think about when you’re choosing your next mortgage.

That’s why speaking with an experienced mortgage advisor can help.

They understand these products inside out and will be able to help you work out which is best for your needs, now and in the future.

Make an enquiry and we’ll match you with one of the experts we work with.

Where can I find the best offset or flexible lifetime tracker mortgage?

Finding the best offset or flexible lifetime tracker mortgage isn’t always easy. That’s because ‘best’ means different things to different people.

Even if you have had great mortgage deals with your current mortgage lender for many years, it doesn’t mean they will have the best lifetime mortgage.

Using a flexible lifetime mortgage calculator can be useful, but while there are a selection of free-to-use mortgage calculators for offset, lifetime and tracker mortgages online, they aren’t always 100% accurate.

In addition, many websites will request a lot of data from you in order to supply you with the figures you need.

However, if you’re comfortable using your current mortgage provider’s online tools, you’ll probably find that they have a suitable offset or flexible lifetime mortgage calculator that you can use, pretty easily.

This can give you an idea of how different amounts of equity withdrawal and interest rates would affect your new mortgage.

Whenever you use an online calculator of these sorts, you always need to remember that you’re only going to be able to get a very rough idea of what may be possible. To get an accurate figure, talk to one of the experts we work with...

Speak to an expert 

If you’re interested in a lifetime mortgage but aren’t sure if an offset, tracker, flexible or a combination of them all, is best for your situation, it can help to speak with an expert lifetime mortgage advisor, like those we work with.

Give us a call on 0808 189 2301 and we’ll put you in touch with the right mortgage advisor for your specific needs.

The service we offer is free, there’s absolutely no obligation and we won’t leave a mark on your credit rating.

Updated: 20th January 2020
OnlineMortgageAdvisor 2020 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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