This product is called an Offset Mortgage a very popular mortgage product in the west, however now on offer in UAE through us. This is how it works:
- The bank, which gives you the mortgage, opens a current account in your name as well.
- Whatever balances you keep in your current account offsets the interest on your mortgage in the same proportion.
- For example, if you take a mortgage for AED 1 Million and keep AED 1 Million in your current account as average balance, you pay 0% interest on your mortgage.
- You don’t have to keep any minimum or maximum balance in your current account. Whatever average balance you maintain in your current account, offsets the interest payment of your mortgage.
- Another example: if you take a mortgage for AED 1 Million and keep AED 500,000 as an average balance in your account, you pay only half interest on your mortgage. The table on the right illustrates the same.
For a loan amount of 1,000,000 your interest savings on your mortgage over 1 year.
Product features of offset mortgage:
- Pay off your Loan much sooner
- Every deposit you make in your current account lowers your interest payments on your mortgage reducing.
- Easy access to your funds in your current account– Use your current account as any normal current account with no balance requirements.
- You can withdraw your available balance at any time, just like any current account
- Interest is calculated on your daily balances, reducing the effective rate of interest
- Its better to place your funds in the current account, which will yield the same rate as that on the mortgage.
- Your Current account will offer all facilities of a Current Account i.e. Debit Card, Cheque book, Internet and Mobile banking.