Offset Mortgages
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An offset mortgage can save you money by combining the balances across your mortgage, your savings and in some cases your current account. Since its introduction in the late 1990's, the offset mortgage has risen sharply in popularity thanks to the number of lenders now offering the products, helping to raise public awareness about the benefits of offset mortgages.
Of course lenders will present their products in different ways, each with their own unique selling points, but ultimately the overriding goal of saving interest is always the same.
Looking at a simple example, lets say that the mortgage on your residential home is £200,000 and you have a savings account with a balance of £30,000, then with offset, the interest payable will be on the net of £200,000 minus £30,000 = £170,000.
Offset mortgages can therefore offer a number of potential benefits for borrowers:
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Lower mortgage payments or a shorter mortgage term, saving interest calculated against a reduced mortgage balance
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Flexibility: in addition to being able to withdraw savings at any time, offset mortgages provide a range of features for borrowers, for example: the opportunity to make overpayments; underpayments; take payment holidays and sometimes draw down previous capital repayments.
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Tax efficiency: instead of earning interest in a traditional bank savings account which as income would be taxable, offsetting the savings balance means that the interest has been saved rather than earned. Therefore an offset account can be a very tax efficient place to keep your savings.
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It can act as a cushion against base rate rises. Any savings balances held against an offset mortgage serves to reduce the interest costs. This is even more important when rates rise because the impact of higher mortgage payments can be mitigated by the savings balances.
At Affinity, we will give you a full and honest assessment of whether an offset mortgage is right for you. Offset mortgage interest rates can often be higher than for a conventional mortgage and with only the balance in your current account or small savings balances, the effect of offsetting is limited. In those circumstances it would be better to take a more competitive conventional mortgage rate. Our advisers will provide comparative illustrations to help you decide.
For many people though an offset mortgage could provide a very tax efficient way to treat your savings; to reduce your mortgage payments and ultimately save interest and years off your mortgage.
Please call us free on 0800 158 3520, or complete the enquiry form below. We look forward to hearing from you.
Your home may be repossessed if you do not keep up repayments on your mortgage
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