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Offset Mortgages
An offset mortgage allows you to link your mortgage to a savings or current account, so the amount owing on your mortgage is offset by the funds you have saved. The more you have in your savings or current account, the less interest you pay on your mortgage, which can help you to repay your mortgage faster and more cheaply. However, you do not typically receive any interest on your savings or your current account.
When mortgage interest rates are low, savings rates are even lower and may be hardly worth having. So rather than saving to receive a small amount of interest, your savings are used directly to cut down your mortgage payments and repay your mortgage faster. There is also a hidden tax benefit, because if you are not being paid any interest on your savings, there is no income tax on the interest either.
In addition, other debts, such as your credit cards or your personal loans can also be linked into the same scheme, which allows you to repay all of your debts at the mortgage rate, often at a much lower interest rate than you would normally pay on this type of borrowing. Another benefit is that the credit cards and loans still remain unsecured borrowings, even though they are paid off at the mortgage rate, so if you are unable to keep up the repayments on those your home is not at risk.
It is important to remember that by consolidating all your debts into your offset mortgage account, what you are actually doing is turning short-term debts into long-term debts. All of these debts need to be repaid sooner or later, and the longer they remain outstanding the more they cost.
Because all of your savings and debts are in separate accounts, even though they work together, people feel safer with them. This is different from a current account mortgage, where everything is mixed together into one account and you end up with one very large overdraft.
Offset mortgages are well suited to people with variable incomes, such as the self-employed or those paid on commission or bonuses. Also for those who like to keep large amounts of savings.
As always, you need to keep a careful watch on interest rates to make sure that you are getting the best deal. You may expect to pay a little more for the benefits of having an offset mortgage, but in a competitive mortgage market, lenders are always coming up with new and tempting offers.
For further information click here for independent mortgage advice and quotation.
NOTICE: A mortgage is a loan that is secured on your home and you also need to think carefully before securing any other debts against your home. Your home could be taken away by the lender and sold if you do not keep up the repayments on the mortgage or any other debt secured on it - if you are in any doubt, seek independent professional advice. These notes are offered as a general guide only and do not constitute financial or legal advice.
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