What is an Offset Mortgage?
Offset mortgages can be a great option if you’re looking to buy a new home. Read on to find out why!
If you’re sat in front of your laptop or phone, wondering ‘what is an offset mortgage’, you’re in the right place. Offset mortgages are basically where you have savings and a mortgage with the same lender. The savings that you have are then used to reduce the amount of interest that you’re charged. Read on to find out why this could be an option for you!
How do offset mortgages work?
In short, offset mortgages can be a great way for you to save money! By reducing the rate of interest that you’ll have to pay on your monthly repayments you could save thousands and even have your mortgage term shortened. This makes it so frustrating that so many people, in general, are still left asking ‘what is an offset mortgage’ because it can be such a great asset! Mostly this is because of a lack of understanding so, lets have a try at remedying
So how do they work? Well, offset mortgages are basically a mortgage deal which links to your savings.
Here’s an example. Say you have a mortgage of £200,000 charging you interest of 2%. Then say you have £40,000 in your savings, earning you didly squat. If you were on an offset this mortgage you would only be paying interest on £160,000 (£200,000 less the £40,000 savings). As a result, over the course of this year, you would be saving £1200 which is the interest that would have been charged on the full £200,000 mortgage if the savings were not being used to "offset" the full mortgage amount. Yes, this does mean that you won't earn any interest on your savings but as the interest charged is generally a great deal higher than what is paid on your savings, it's a great compromise.
Offset mortgage tips:
If you feel like you’ve got your head around what an offset mortgage is, let’s take a look at some tips so you know exactly what you’re getting yourself involved with! When it comes to offsetting mortgage you can basically choose how you save money. This can either come in the form of lower monthly payments or you can have your mortgage term shortened. So depending on your future plans you can choose how you benefit from your savings.
What’s great about offset mortgages is that you pay no tax on the interest that you end up saving. Whereas you may pay tax on the money you save in a normal savings account. So, in our example where offsetting our £40,000 savings is earning the equivalent of £100 per month we can chose to reduce our monthly mortgage payment by that £100 or we can continue paying our normal mortgage payment & the £100 will be treated as an overpayment each & every month that the £40,000 is sitting in the savings pot.
What we can do to help:
If you’ve got any more questions then drop us a message at Mortgages Online! We compare thousands of deals from hundreds of lenders across the market so we can help find the best-offset mortgage deal that works for you! All you have to do is contact us through our website. Sounds easy, doesn’t it? So, what are you waiting for?
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