Five Questions About: Offset mortgages
How do they work?
With an offset, your mortgage debt is set against your savings. As a result, instead of earning interest on your savings, you pay less interest on your mortgage.
For example, if you had a mortgage of £100,000 and savings of £25,000, you would only pay interest on £75,000 of your mortgage debt. In many cases your monthly mortgage payment would be based on a loan of £100,000. This means you effectively overpay every month and as a result will clear your mortgage more quickly and potentially save thousands of pounds in interest.
However, some lenders will allow you to reduce your monthly mortgage payment so that it is calculated on a £75,000 debt, rather than £100,000. If you go for this option, it won't help cut the term of your mortgage, but obviously you will benefit from lower mortgage payments.
Can account holders still access their savings?
Yes. If you have an offset mortgage, your savings are held in a separate "pot" and you can pay money in, or take it out, at any time.
Depending on the lender, you may also be able to link your current account to your mortgage as well.
What are the benefits?
Offsetting is a great way of reducing the term of your mortgage and paying less interest. However, it can also be hugely beneficial for taxpayers. Income tax is payable on savings interest, but because you don't earn any interest on savings in an offset account, there is no tax to pay.
Who are they suitable for?
In the current environment of low-interest rates and rising inflation, offset mortgages look particularly attractive. It is virtually impossible for savers to earn a positive return on their money after tax and inflation. Therefore offsetting your savings against your borrowings could be a great way for your money to work better for you.
Offsetting is most beneficial for 40 per cent and 50 per cent taxpayers because of the tax benefit.
Are there any catches?
Offsetting won't always be the best option. You need to look at the mortgage rate and consider the amount you have in savings, particularly if you are wanting a fixed rate mortgage. The most competitively priced offset deals tend to be on variable rate mortgages.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 3 Daily Show's Jon Stewart destroys Fox News for its Ferguson coverage
- 5 Terror threat level raised to severe as PM warns Isis risk could last for decades
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
Ukip Douglas Carswell defection: Tory MP jumps ship to join Nigel Farage
When elitism grips the top of British society to this extent, there is only one answer: abolish private schools
- < Previous
- Next >
iJobs Money & Business
£50000 - £80000 per annum + benefits+bonus+package: Harrington Starr: Data Sci...
£450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...
£32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...
£200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony