The Value of Offset Mortgages in the Wake of the COVID-19 Pandemic by Francois Moreau, Writer and Risk Analyst
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they get several different accounts: the mortgage loan, a checking account, and a line-of-credit or loan So how do offset mortgages work, and against the equity in the home. All who should take advantage of them? of these accounts must be at the same We address these questions and more institution. below. Money sitting in the checking account How does an offset mortgage work? First, it is essential to understand the reduces the mortgage principal balance terminology. The word offset refers when calculating interest. Because to the fact that money contained in interest payments are consequently linked savings or checking accounts lower, the monthly mortgage payment offsets the mortgage balance, reducing reduces the outstanding principal interest payments and allowing the balance more quickly, allowing Most buyers can’t afford to pay cash for buyer to pay the mortgage off more homeowners to pay off their mortgage much faster. their new home. But the prospect of a quickly. mortgage well above what the buyer initially intended to pay is daunting. However, if you are looking for offset Homeowners can still use the money Not only may there be difficulties loans in the United States, you may not in the checking account as they obtaining the mortgage because the find them under this name. Because would in any other checking account. assessed property value can’t keep up of IRS regulations prohibiting using Withdrawals from the checking with the bidding war, but if buyers earned interest to offset paid mortgage account take the form of increases successfully get the mortgage, the interest, the term offset is not in the home equity line outstanding payments may be quite high. completely appropriate. Buyers will balance. often see them referred to as all-in-one One mortgage option gaining loans instead. The IRS regulations also Why does this help homeowners? popularity globally in recent years make US offset loans operate slightly Consider the monthly cash flow of a typical homeowner who has a direct is the all-in-one or offset mortgage, differently than in other countries. which allows buyers to reduce interest deposit for their paychecks. Most payments by applying their savings So how does an all-in-one mortgage people will not spend all of their against their mortgage balance. Indeed loan work in the US? When a salaries as soon as it comes in the some banks have seen the requests for homebuyer applies for an offset loan, door. So the money is there to help he housing market in the United States has been scorching for the last year, with prices skyrocketing and supply plummeting. Homes sell within days, if not hours, of going on the market. Competition for existing homes is stiff, with many properties receiving numerous offers, often in cash and frequently well over the asking price. Some buyers have even paid 7 figure premiums over the asking price to beat out other potential buyers.
12 NAMB.ORG | SUMMER 2021
offset mortgages double in the first quarter of 2021 compared to 2020.
