Mortgages

Offset Mortgage

An offset mortgage is the ultimate flexible mortgage.

Offset mortgages aren't as complicated as most people think and can provide a means to paying off your mortgage early.

How do Offset Mortgages Work?

An offset mortgage works by calculating the actual money you owe by taking your positive savings and current account balances away from the amount you owe on your mortgage and working out the interest based on the resulting amount. This is done on a daily basis so fluctuations in your balances are always taken into consideration.

Say you have £5000 in a savings account and a balance of £1000 in your current account. If you had a mortgage of £80000 the offset mortgage would calculate that days interest based on a mortgage of £74000 (£80000 - £6000 combined current and savings account balances).

As the funds are offset against your mortgage you do not receive interest on your credit balances.

For example, rather than receiving 3% interest on your savings and 0% interest on your current account balances but paying 6% on your mortgage under an offset mortgage you would simply pay interest on the net figure of your mortgage minus your current account and savings account balances.

Pros and Cons

Generally rates for mortgages tend to be higher than savings and current account interest rates and therefore not paying interest on a proportion of your mortgage rather than earning interest on your savings will save you money.

It also has the advantage that as you are not actually earning any interest on your savings you won't have to pay any tax on your interest.

Your money remains in separate accounts so you can still see how much you actually have in your current and savings account, but it gets your money working as hard as possible.

The main drawback is that offset mortgages are rarely the best rates on the market so it is important to get help and advice when choosing your mortgage. Give me a call or fill out my quick contact form and I will be happy to provide fee free advice to help you through the mortgage minefield.

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