OFFSET MORTGAGE Meaning and
Definition
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An offset mortgage is a financial product that combines a mortgage with a savings or current account. This type of mortgage allows individuals to use their savings to offset the outstanding balance of the mortgage, thereby reducing the amount of interest they have to pay.
In an offset mortgage, the borrower's savings are held in a linked account that is connected to their mortgage. The interest earned on the savings is used to offset the interest charged on the mortgage, effectively reducing the overall interest paid. The remaining mortgage balance would only accrue interest on the difference between the savings and the mortgage, resulting in potential savings on interest payments over the life of the loan.
The offset mortgage offers flexibility to borrowers as they have the option to choose how much of their savings to offset against the mortgage balance. Some lenders may even allow borrowers to offset their entire savings, but still have access to the funds if needed. Essentially, the savings act as a buffer, reducing interest costs while still offering the accessibility of the funds.
This type of mortgage is generally suitable for individuals with substantial savings or those who receive irregular income, such as bonuses or commissions. By opting for an offset mortgage, borrowers can potentially benefit from faster mortgage repayments or a shorter loan term, as well as the ability to retain liquidity and access to their savings for emergencies or other purposes.
Etymology of OFFSET MORTGAGE
The term "offset mortgage" is a combination of two separate words: "offset" and "mortgage".
1. Offset: The word "offset" comes from the verb "to set off", which means to balance or counteract something by opposing forces. It originated from the Old French word "offeset", which meant "to fix firmly". In the context of an offset mortgage, the term refers to balancing the borrower's mortgage loan with their savings or other accounts to reduce the amount of interest paid on the mortgage.
2. Mortgage: The word "mortgage" has a Latin origin. It comes from the Latin words "mortuus" (dead) and "gage" (pledge). In medieval Latin, this term was used to describe a "dead pledge" or a form of security where the ownership of property would be transferred to a lender until the borrower repaid the loan.
