What is an offset mortgage?
The basic idea behind an offset mortgage is that your savings account and your mortgage are both combined into the same account so that any savings you have can count as temporary overpayments towards the repayment of your debt.
The key benefit is that you still have access to your savings so you can spend them if you need to. This, of course, is not the case when you make conventional overpayments on your mortgage as the money used to do so goes directly to the lender, never to be returned to you.
What kind of savings can I expect with an offset mortgage?
Having an offset mortgage allows you to make significant savings on interest.
If you have a mortgage worth £150,000, and have £20,000 in a savings account, then with those savings offset against the mortgage value, you’d only be paying interest on the £130,000 difference.
The savings you’d make on interest will, in general, be greater than the interest you’d earn by simply leaving your money in a conventional savings account. You also avoid paying the 20-25% tax on your savings, since the mortgage repayment interest deductions you enjoy are not going to be taxed.
So by offsetting your lump sum savings against your mortgage and making regular deposits into the account, you could save thousands of pounds in interest throughout the course of your mortgage.
Should I take out an offset mortgage?
While the savings you’d make by offsetting your savings against your mortgage can be drastic, this is taken into account when mortgage providers calculate the rates offered on these loans.
Offset mortgages tend to have higher interest rates than those attached to conventional mortgage plans, but with the right amount of savings, you should still end up saving a substantial amount of money.
There are various offset mortgage calculators available online that you can use to work out exactly how much you’d save, but by talking to a mortgage specialist or financial advisor you’ll be able to work out whether or not it’s the right move for you. It all depends on the size of your savings and how much you’re regularly depositing, as well as of course on the size of the mortgage to begin with.
Compare offset mortgage plans online
By using our mortgage comparison tool you’ll be able to see the difference in costs between various different plans, including between offset and conventional mortgage plans.
Head over to our mortgage comparison page now to see how much money you could be saving by taking out the best offset or conventional mortgage plans on the market.