We know how a traditional fixed-rate mortgage works – the typical borrower will take a loan out for approximately 30 years, with the first few years primarily spent on paying mostly interest. But what if those first years were dedicated to paying off the loan’s principal instead?
Enter: The Offset Mortgage Loan
What is an Offset Mortgage?
The Offset Mortgage Loan combines daily banking functionality of a checking/savings account with a home mortgage to provide a way to shave years off of mortgage payments and accrued interest.
How does it work?
Rather than payments going towards the loan’s interest first, your checking account deposits are applied to lowering your loan’s principal. The interest on the loan is then recalculated daily, which will naturally decrease over time. At the end of the month, the daily interest charges are added up and deducted from your checking account.
- Offset Mortgages are available for new home purchases and refinances of Primary, Second and Investment properties
- The mortgage is a 30-year loan that provides access to home equity dollars through its banking features without forcing the borrower to refinance
- Requires good credit and is most suitable for cash-flow positive household
- Borrowers can pay off their homes sooner, build equity faster and free up money that can be used to build wealth
- Principal is paid first – Every dollar you deposit into your checking account is applied to the principal with the ability to access it at anytime
- Interest rate is determined by a fixed margin + 1 year Constant Maturity Treasury rate
- 10 year Interest only period followed by a 20 year period where your line of credit decreases by 1/240th per month
Benefits provided with an Offset Mortgage:
In being able to focus on paying the principal first, clients can dramatically decrease their interest charges and pay their home off faster. Usually when you pay down your home loan, you tie up your money in the equity of your home and a cash-out refinance or HELOC is required to tap it. With Offset mortgage loans, however, you can access the money used to pay down your loan at any time for the duration of the 30-year loan.
Who is the ideal borrower for this loan program?
- This loan program is ideal for the fiscally conservative borrower, who keeps liquid cash in their checking/savings accounts
- Well suited for self-employed borrowers that may see large distributions and/or deposits into their personal bank account
- Borrowers who do not like carrying debt
- Borrowers who are disciplined in making extra payments towards their mortgage loan balance and/or want to pay off their mortgage faster
- Retirees with good assets
- Borrowers who have cash-flow positive businesses
Overall, the Offset Mortgage is a wonderful alternative to a traditional mortgage loan. It is a great option – for those who qualify – to simplify the mortgage loan process by saving time and tens of thousands of dollars in the long run.
If you want to know if you qualify, or have any questions regarding Offset Mortgage Loans, please contact us at (760) 930-0569 and one of our loan officers will be happy to assist you.