Offset Mortgages

These have become very popular in recent years in no small effort by lenders to promote them. In theory they sound a good idea and a practicle solution to many who want to save thousands of pounds in interest. However it most certainly is not the panacea of mortgages.

The principle behind an offset mortgage is the balance outstanding on the mortgage, for example a £100,000
mortgage has an offset account of savings running alongside for example £10,000. In this instance effectively you have a balance outstanding of £90,000. You continue to pay as if you still have a balance of £100,000, therefore you are making overpayments on your mortgage. This in turn reduces the term of years your mortgage will be outstanding, saving you a lot of money in interest.

You can also take an additional advantage if you happen to be a higher rate tax payer. Any savings that you have in the account has the effect of not being  subject to tax. Therefore you will be recieving the same rate of interest on your savings as you are being charged on your mortgage.

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However an offset mortgage does tend to have a higher rate of interest making it more
expensive if you do not use the offset facility to your advantage. As a guide you will need at least £5,000 in the offset account to take advantage of the account or need to be a higher rate tax payer and have your salary paid into your mortgage account.

Offset Benefits:

  • Conveniance of having your bank account and mortgage in the same account
  • Opportunity of saving several thousand pounds off your mortgage
  • Ability to reborrow from your mortgage account without having to make another application.

Offset Negatives:

  • A higher rate of interest will normally be charged for your mortgage
  • Can end up actually costing you more interest over the term of your mortgage.
  • Can be daunting when a monthly statement arrives showing what you owe.
  • Can be very tempting to reborrow money from your account.

Not suitable for everyone. They can be very beneficial providing it is used for your own benefit and not for the purpose of lenders profits.

Your home may be repossessed if you do not keep up repayments on your mortgage

For further information or if you wish to discuss please contact:

Telephone Number: 01708 640855


Twitter: @LifestyleFinMan

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