Offset Mortgages – What are they and are they right for you?

When it comes to acquiring a mortgage, you want to know you’re are getting the one that is right for you, and you are making a fully informed decision. That’s why we want to highlight mortgage options you might not be aware of, like an offset mortgage. So, let’s get into what exactly is an offset mortgage and why it might be what you’re looking for.

An offset mortgage allows you to link with a savings account to reduce the amount of interest you are charged. How does this work? It’s simple. By offsetting the value of your savings account against how much you borrowed for your mortgage loan, you are only charged interest on the amount left over. You make monthly repayments to bring down the outstanding balance, but the total amount on which interest is calculated takes the linked savings into consideration. Essentially, by having a large amount in your saving account, you can drastically reduce the amount of interest you need to pay back.

Let’s use an example: You have a mortgage of £200,000 and your savings account holds £20,000. With an offset mortgage, you would only pay interest on £180,000 of your mortgage, instead of the full £200,000. That’s a 10% savings on the amount of interest to pay.

What are the benefits?

The most obvious benefit is that you reduce the amount you need to pay. You can get the most out of an offset mortgage if you have a large amount in your savings account, as you’ll pay a much smaller figure. It is flexible and you can still make deposits and take money out of your savings account.  You will also pay zero tax on the interest you save, and it is sometimes possible to put down a smaller deposit.

What are the negatives?

With an offset mortgage, the money in your savings account won’t earn any interest if it’s being used for said offset mortgage, so it is more limiting than other savings accounts. Your linked account must be with the same provider for an offset mortgage, which can mean you will need to switch accounts. They can also carry higher rates.

Who are offset mortgages best for?

Offset mortgages work best for people with big savings that can remain untouched for many years.

They are best suited for:

·       Family members who want to help others get on the property ladder.

·       Self-employed people with an inconsistent income.

If you have any further questions about offset mortgage, don’t hesitate to get in touch. Remember that your mortgages choices always come down to you and your individual circumstances.

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