Offset mortgages

Link your savings account to your mortgage account to save on interest repayments

With savings interest rates being relatively poor at present, utilizing spare capital to cut down your mortgage payments, or repay your mortgage more quickly seems a much more beneficial use of money.

The offset mortgage has always been something of an enigma in the UK after being heralded on their first appearance as the future of mortgages, however they have not taken off here in the same way they did in Australia for example.

In reality, offsets are a relatively simple concept. A standard mortgage is taken out for say, £300,000 and a savings account, or multiple accounts, are taken out with the same provider. The borrower then deposits their savings into this account which is then “linked” to the mortgage account. Every month the lender calculates the interest you need to pay based on the total amount borrowed on the mortgage less the amount held in the savings account.

In other words, if the borrower has a £300,000 loan, but also has £100,000 in the savings account, the interest is only calculated on the difference between the two, in this case £200,000.

This means that less interest is being paid and therefore either the monthly payments are reduced, or the capital balance is paid of quicker.

Another interesting benefit is that parents can use their own savings to assist in bringing their children’s’ mortgage payments down, but still have access to money.

It is definitely a case of discussing all the options available with a professional adviser, who will provide a good overview of the products available to you including the options of an offset mortgage.

 

Things to consider

Do I want the security of fixed monthly payments?

How am I going to pay the loan back?

How much can I borrow?

How much deposit do I have?

Do I have money set aside for fees such as legal costs and stamp duty?

What exactly does the mortgage process involve?

Important

Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured upon it.

A fee of up to 1% of the mortgage amount may be charged depending on individual circumstances. A typical fee is £495.

Everything you need to know to speed up your mortgage application.
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