What is an Offset Mortgage plan, in very simple terms it allows you to link your mortgage to your saving’s? The balance of your savings is used to reduce the amount of interest changed on the mortgage.
This where the term” Offset” comes into play as the balance of your savings is Offset against the mortgage and you only pay interest on the reduced amount. Your savings do not actually repay any of the mortgage, they just sit alongside the mortgage and save you the interest.
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As an example if you had a mortgage of £200000 and you were paying an interest rate of 3% you would be paying £6000 each year.
If you had savings of £20000 in your account you would only pay interest on £180000 which would save you £600 each year.
With your Offset mortgage plan you can choose to either lower your monthly repayments, or make the full repayment and shorten the length of your mortgage term and become mortgage free a lot sooner. This is one of the benefits of overpaying or saving more money. Once your savings are offset against your mortgage you can still add to them, and the more savings that you have to offset, the more money you will save in mortgage interest payments. You could of course over pay and this will still have the same impact of reducing the debt and saving you interest.
Important Considerations for Offset Mortgages
Positive Points of an Offset Mortgage
Save more interest than you can earn in a savings account
Pay no tax on the interest that you save. You may have to pay tax on interest earned on a normal savings account apart from a cash ISA
Keep easy access to your savings, please remember that your mortgage repayment will go up if you make a withdrawal from your savings account.
Repay your mortgage quicker or make lower monthly repayments
Be in a position to help a child or a relative get on the property ladder.
Your savings do not earn interest
Your savings will lose their spending power as they will not grow.
Getting an Offset Mortgage Needn’t Be Difficult. The mortgage marketplace in 2020 is constantly changing, with lenders looking for business, meaning their lending criteria is always under review.
A fantastic service run by fantastic people. Always kept us updated a long the way from getting our mortgage offer all the way to completion, topped off by a lovely gift! Thank you Michael and Karen for everything you have done for us.
Dan and Chantelle
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