What is an offset mortgage?
This type of flexible mortgage links savings to your mortgage. When making this deal with a lender, you’ll need to open an offset account with them. Lenders look at how much is in your offset savings account each month, and you’ll only pay interest on the difference between the two amounts. For example, if your mortgage is £150,000 and you have savings of £25,000, you’ll only pay interest rates on £125,000 of the mortgage. The interest paid will therefore be lower than for other mortgage arrangements. However, some lenders also offer you the chance to keep your mortgage rate at the same each month so that your mortgage will be paid off quicker (by overpaying).
Pros and cons of offset mortgages
While your interest rates will be lower, offset mortgage rates are often higher than other deals. You’ll still be able to get access to your offset savings, but the more you can put in, the faster your mortgage will be repaid. It’s also worth remembering that you won’t be earning interest on your savings. However, offset mortgages are particularly useful for high earners who would otherwise be paying tax on their savings’ interest.
Many people start out with a beneficial introductory offer with their mortgage lender. However, when this offer comes to an end, they’ll usually be switched to a variable rate mortgage such as the lender’s standard variable rate (SVR). If you feel you can get a better deal, consider getting advice about the various options available to you. If you can find a better deal elsewhere or want to switch to an offset account with another lender, remortgaging can be an ideal option.
When looking to apply for any type of mortgage, getting professional, impartial advice can help you get the best mortgage product for you. Find a trusted mortgage adviser in your local area here.