A guide to Offset Mortgages
Offset mortgages used to be one of the most popular options back in the 1990s but have since declined because people aren’t as good at saving anymore. However, they would be a viable option for anyone who feels they are able to put something away each month. This also an option to bear in mind if you think you may come into money in whichever form in the near future.
In regard to how offset mortgages work, when you set one up with a Lender, they also give you a Savings account as well. The Savings account which is supplied to you is linked to your mortgage. Despite the savings account not offering you any interest, the money which is withheld ‘offsets’ against your mortgage balance. For example, if you owe £100,000 on your mortgage and your savings account holds £18,000 then you only pay interest on £82,000.
Despite popular belief, offset mortgages are very flexible arrangements. You are able to deposit as much money as you wish until the mortgage is completely “offset”. Any money you put in there is instantly accessible for you to use as and when you wish.
Because saving accounts for an offset mortgage saves on the interest connected to your mortgage rather than building interest, there is no tax to pay on anything you put into it. This is why this type of mortgage appeals to Higher Rate Taxpayers.
When looking at the negative factors of the offset mortgages. These types of mortgages do tend to have slightly higher interest rates and fees than other mortgages. By which means that if you are not going to make use the available features than you’ll be better off with a regular mortgage.
If you think you are due for a lump sum for a particular reason in the upcoming future such as a possible inheritance, an offset saver can be a good place to deposit the money until you figure out what you plan to do with it. The same would apply for if you received annual or quarterly bonuses in your job that you do not rely on.
Consumers who prefer offset mortgages often stick with them and are less likely to go through the process of Remortgaging as opposed to other customers. They can be a little complex to understand so be sure to consider all options available when speaking to your Mortgage Advisor. Your Advisor will be able to show you the ins and outs of how an offset mortgage may save you money over the full term.
The majority of people plan to overpay their mortgages when they first take them but never get around to putting this into action. This is often due to uncertainty because they are nervous about paying too much off their mortgage which could have an adverse effect on their future capital requirements.
Once more, offsets are a great solution for this type of borrower as you’re able to access the money at anytime but each day the savings remain in your account – it’s working in your favour.