When to opt for an offset mortgage

Offset mortgages- and when to use them

With the housing market in the UK so unstable at the present time and the mortgage lenders being very unforgiving, if you feel it is the right time to purchase a property, then you need to take time to consider all the options. Contact A Mortgage NowThere are many different types of mortgages available in the UK, one that may not be commonly used but certainly with many plus points is the offset mortgage.

Offset your savings

An offset mortgage facility is an excellent idea if you have a reasonable amount of savings.

Under an offset arrangement you hold a cash bank account and mortgage together in the same institution.
The value of the cash in your bank account, allows for big reductions on your mortgage repayments.

It is quite easy to figure out your offset repayment schedule and the benefit is has over some more traditional ways of purchasing a home. For example, if you have a mortgage of one hundred and twenty thousands pounds and another twenty thousand pounds in savings in the same account, then your interest repayment will be calculated on an amount of one hundred thousand pounds instead of the higher amount.

The offset mortgage is therefore well worth considering if you are an individual who either finds it easy to save, or indeed has a fair amount of savings that you wish to keep in your current account.

Offset for flexibility

The offset mortgage system is flexible, and you are in no way penalized if your savings drop; in fact you are not under any obligation to keep a minimum amount of savings in your account although you need to be careful of monies due when your mortgage comes to term. In this way, if your annual income fluctuates. or if you are self employed, you can enjoy lower repayment for the months where you manage to keep more cash in your account.

Reduce your tax bill

Another reason to use a UK offset mortgage scheme is if you wish to have savings but not to be taxed on them. Many people steer clear of having large amounts of savings in any one account as you will be forced to pay tax on them. The more savings you indeed have, the more you will be taxed, that is unless they are offset against your mortgage.

Raise your savings interest

Keeping your money tied to you mortgage account will also allow you to benefit from a higher effective interest rate return on your savings. A run of the mill current account will generally have an interest rate of around one percent, whereas that of a mortgage can be three or four times this figure. It is therefore logical to combine the two into the same account, reducing the total mortgage interest you pay at gross rates without the drag of taxation.

Although using an offset mortgage facility means that you are placing cash and mortgage with one mortgage provider, the flexibility of the scheme and the advantages for you as the saver greatly outweigh this downfall. As long as you can discipline yourself to keep up with your repayments on your mortgage, and keep savings in your offset account, you will not be liable to any large loan repayments once your mortgage comes to term; this allows for an overall positive result.

To find out more about offset mortgages – contact us now.

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