Offset
If you have had a mortgage over the last couple of years, then you are probably very pleased that the interest rate has been so low.
But on the other hand if you have been a saver then you are probably annoyed that you simply have not been able to get a good deal for your savings.
However if you do have savings, then an offset mortgage will probably be a good way for you to reduce the amount of interest that you pay on your mortgage, offering you a chance to save some money. But you do need to bear in mind that you will not earn interest on the savings themselves.
An offset mortgage literally allows you to ‘offset’ the mortgage debt against the savings that you have in specific and linked accounts. So if you have a mortgage of £250,000 and your savings are £10,000 you only pay interest on £240,000. This may not sound like much but over the lifetime of your mortgage it can soon add up.
Accessing Your Savings
Some people are put off from taking out an offset mortgage because they think that their savings will be ‘locked in’ to the mortgage. However this is not the case. As long as your mortgage is kept up to date in terms of repayments you will be able to withdraw money without incurring any type of penalty.
You can have various accounts linked to the mortgage so even if you have some short term savings accounts for something like a holiday, then these can also be added in. Some lenders will even let you have your current account linked in to the mortgage, which is great news if you manage to stay in credit and do not go overdrawn, because this will save you even more money.
Specific Accounts
To make accounts qualify as being ‘offset’ against your mortgage the balances have to be allocated to accounts where you will not earn any interest on the balance. But the good news is that the interest that you will not have to pay in mortgage repayments actually helps you to save money. However if you do not have savings that will actually reduce your interest rate, then an offset is not for you; you do need some savings to make it viable.
You also need to be aware that when you don’t receive interest payments then you will not pay tax on the interest, which makes them more attractive if you have to pay tax at the higher rate.
An Adaptable Approach
One key feature of the offset mortgage is that it is extremely adaptable. You will be able to make overpayments at any point or even underpay, which can be great news for people who need to have some flexibility with their mortgage repayments. For example if you are self employed or have your own business and money tends to vary in terms of income, then an offset mortgage could be just right for you.
You also get to choose just how you want the savings to help with your mortgage. For example you may want to keep payments really low, in which case you ask your lender to reduce the payments in line with the amount your savings add up to, but if you want to keep the payments the same and effectively overpay your mortgage each month, then this will help you to pay off your mortgage more quickly and saves you interest as well.
If you are interested in finding out if an offset mortgage will help you then it is easy to pick up an offset mortgage calculator from a lender who specialises in offset mortgages and you simply use the calculator to check out the level of savings that you can make.
