Offset Mortgages

Offset mortgages are a way of using money in current accounts and savings accounts to significantly reduce your mortgage payments.

How Does An Offset Mortgage Work?

Imagine you have a mortgage for £100000 but you also have £20000 in savings.  With a traditional mortgage you would pay monthly mortgage payments for the £10000 each month whilst your savings earned interest.  An offset mortgage uses your savings to reduce our borrowings.  By linking your savings to your mortgage in this instance you would foresake interest on your savings in return for not being charged interest on £20000 of your mortgage.  Effectively your monthly mortgage payments would assume £80000 interest payments yet you still have access to your savings should you need them.

How Does An Offset Mortgage Save Me Money?

Because you are only charged interest based on your total debt, the more you have in your savings pot the more you save.  Over a 25 year mortgage you can literally save thousands of pounds.  Offset mortgages are also extremely tax efficient too especially in low interest rate environments.  As you foresake the interest on your savings in order to reduce your borrowing interest, you therefore also have no tax to pay on your savings. 

Is An Offset Right For Me?

If you find that you have money in savings that you would prefer to put to better use in order to reduce your borrowing interest then yes, an offset might well be for you but you should make sure that you have compared its benefits and rates against traditional mortgages before you commit.  Offsets are also useful for those whose income is erratic or where large commission payments occasionally are likely.  The key benefit to offset mortgages is their flexibility but this does come at a price.  You may find that offset rates are slightly higher than traditional mortgage rates.