Demand for Offset mortgages has dropped since the 1990s, although they’re still a great option for customers who are able to put something aside each month. They’re also good if you think you may receive a lump sum in the near future.
When you take out an offset mortgage, the lender will give you a savings account to go along with it, solely for the purpose of the mortgage. Rather than attracting interest, the money offsets against your mortgage balance. For example, if your mortgage is worth £100,000 and you have £15,000 in savings, then you only pay interest on the remaining £85,000.
Offset Mortgages are actually very flexible arrangements. Until the mortgage is completely offset, you can put as much money in there as you want. The money you save is always instantly accessible, so comes in handy if you need somewhere to store any “rainy day” emergency funds.
One of the great things about it is that it saves interest, as opposed to attracting it, so you won’t pay any tax on anything that goes in there. Higher rate taxpayers especially love Offsets!
It’s a smart option if you are due a lump sum for any reason, such as future inheritance, as you can store your money until you decide what to do with it due to it being interest-free. This also applies to any annual or quarterly bonuses from your job that you don’t rely on.
With this being freely accessible at any time, you could then dip into your additional savings for other uses, whilst leaving the rest towards your mortgage. You must remember to keep a substantial amount in though to make your offset worthwhile!
An Offset is a great opportunity for First-Time Buyers who plan to overpay on their mortgage. In the long run, overpaying can reduce your mortgage payments for your next term, thus reducing interest rates too. With other mortgage types, the money you put in cannot be taken out again until the end of your term, which can be less than ideal if you change your mind or need to take some of it out early.
This is where Offsets are quite clever. Because you have a savings account, you can take out the funds at any time, then put them back in when you’re ready. So, if you’re looking to make additional payments on your mortgage over time, we’d recommend taking advantage of the Offset savings account as you go.
You should consider all your options when speaking to a Mortgage Advisor in Manchester. Some consumers who like Offset Mortgages tend to keep going with them and are less likely to remortgage as other customers. They can be rather confusing though and not everyone opts to go with this option.
Your advisor will be able to show you the impact of how an Offset can save you money over the course of the full term. If you have any questions about Offset Mortgages or Remortgages, please get in touch and we’ll be happy to discuss the topic further.