Offset mortgage
This is a more complicated mortgage as it links your savings to your mortgage debt.
Rather than earning interest on your savings, that money is set against your mortgage so you pay less interest on that debt. For example, say you have a £100,000 mortgage and £20,000 in savings, you would only be charged interest on £80,000 of the mortgage. However, your monthly mortgage repayments will have been calculated as if the debt was £100,000. This means you end up paying more than you need off your mortgage each month. As a result you clear your mortgage off more quickly and save yourself thousands of pounds in interest.
Some lenders give the option of reducing the monthly payments so that they are calculated on the mortgage amount once your savings are factored in. So with the example above, your repayments would be based on a £80,000 mortgage. This can be good if you want to save money now, but it won’t help if you are considering an offset to pay your mortgage off more quickly.
If you are considering an offset, you will have the choice of fixed or variable rate products, so consider the advantages and disadvantages of those as discussed above. Also, some offset providers will let you link your current account to your mortgage as well as your savings.
Rather than earning interest on your savings, that money is set against your mortgage so you pay less interest on that debt. For example, say you have a £100,000 mortgage and £20,000 in savings, you would only be charged interest on £80,000 of the mortgage. However, your monthly mortgage repayments will have been calculated as if the debt was £100,000. This means you end up paying more than you need off your mortgage each month. As a result you clear your mortgage off more quickly and save yourself thousands of pounds in interest.
Some lenders give the option of reducing the monthly payments so that they are calculated on the mortgage amount once your savings are factored in. So with the example above, your repayments would be based on a £80,000 mortgage. This can be good if you want to save money now, but it won’t help if you are considering an offset to pay your mortgage off more quickly.
If you are considering an offset, you will have the choice of fixed or variable rate products, so consider the advantages and disadvantages of those as discussed above. Also, some offset providers will let you link your current account to your mortgage as well as your savings.
Advantages
As well as enabling you to knock years off your mortgage and save you thousands of pounds in interest, offset mortgages also offer a significant tax benefit.
Ordinarily, you pay income tax on any interest you earn on your savings. However, if you offset you have an offset you don’t earn interest on your savings so there is no tax to pay. An offset can therefore be particularly attractive for people in the higher or top rate tax brackets.
Ordinarily, you pay income tax on any interest you earn on your savings. However, if you offset you have an offset you don’t earn interest on your savings so there is no tax to pay. An offset can therefore be particularly attractive for people in the higher or top rate tax brackets.
Disadvantages
The rates on offset mortgages tend to be higher than those on standard mortgage products so if you only have a small amount in savings, you may be better off just taking a normal mortgage and finding the most competitive savings rate you can.
Hopefully, this guide has helped you get to grips with mortgages a bit more, but if you are still unsure about what type of deal to go for, speak to an independent mortgage advisor. We’re partners with L&C Mortgages, which is a fee-free broker, so you can call them on 0844 776 1952 for more help. It’s well worth getting it right when it comes to your mortgage as it could save you thousands of pounds!
Hopefully, this guide has helped you get to grips with mortgages a bit more, but if you are still unsure about what type of deal to go for, speak to an independent mortgage advisor. We’re partners with L&C Mortgages, which is a fee-free broker, so you can call them on 0844 776 1952 for more help. It’s well worth getting it right when it comes to your mortgage as it could save you thousands of pounds!
There is so much choice when it comes to picking a mortgage, that it can seem totally baffling. Not only do you have to work out which mortgage will be the cheapest for you, which means looking at interest rates and fees, but there are also different types of product available.
So should you go for a fixed or variable rate deal? And what about offsets?
Here we explain the differences in order to help you work out which is the right type of mortgage for you.
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