Put simply, offset mortgages are a way of combining your savings with your mortgage. Instead of earning interest on any savings, the cash held in your savings account reduces the amount of mortgage interest you pay. The more you have in savings, the less interest you pay and the quicker you pay off your mortgage. This makes sense when you consider that mortgage interest rates are higher than savings interest rates.
A priority for many people is to pay off their mortgage as soon as possible. If this is the case, you could consider an offset mortgage as opposed to the alternative, i.e. overpaying on a standard mortgage. By putting cash into an offset facility, you can still withdraw it when you need it, which is often not the case if you were to simply overpay on a standard mortgage. As most people will have other calls on their cash – in addition to paying their mortgage off early – such as paying school fees, maximising deposits before a tax bill or simply a flexible credit line to call on at any time – an offset mortgage can be an attractive option.
People holding cash deposits that may be required at short notice, such as property developers or investors, may find an offset facility especially useful, as money sits in the linked account until required, and can then be returned to offset the mortgage balance for another period.
Similarly, self-employed people, such as partners, barristers and architects, who have two large tax bills per year – along with those who have unpredictable earnings – also find an offset mortgage a flexible, efficient approach. The money is needed on demand and doesn’t attract a good return in a cash account, with instant access accounts currently paying very low rates of interest. In addition, any cash held in a normal instant access account will be subject to tax at your highest rate, whereas savings in an offset savings account are not taxable.
Offset mortgages are flexible and may allow you to pay off lump sums without penalty.
The type of mortgage you choose depends upon your particular financial circumstances and our expertise allows us to find the one that would work best for you. For example, you can have a fixed rate offset mortgage. The advantage of this is that you will know your fixed payments for a set timescale and you can plan accordingly.
Offsetting won’t be the best option for everyone but many people could benefit significantly from having an offset. It’s worth investigating whether an offset could be right for you rather than just sticking with standard mortgage and savings accounts.
So, if you are looking for a new mortgage, don’t just look at re-mortgaging with your existing lender as they may not have the most suitable product or most competitive deal for you. We can look at a range of contemporary mortgage products which can help you to run your life more efficiently.
The above content does not present a personal recommendation. If you have any questions about offset mortgages or would like to discuss the best options for your individual circumstances, please contact our Mortgages team on 020 7444 4030 or by email.
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