Offset mortgages are by no means as accessible as they were in the 1990s. The demand has dropped because people aren’t as good at saving as they used to be. However, they are a fantastic option for customers who can put something aside each month. They are also ideal if you think you may receive a lump sum soon.
In terms of how they work, when you take out an offset mortgage, the Lender gives you a Savings Account at the same time. The Savings Account gets linked to your mortgage. While the Savings Account does not attract any interest, the money in their “offsets” against your mortgage balance. E.g. if you owe £100,000 on your mortgage and you have £18,000 in your Savings Account then you only pay interest on £82,000.
Offset Mortgages are very flexible arrangements. You can put as much money in there as you wish until the mortgage is completely “offset”. Any money you put in there is instantly accessible, so it’s an ideal place for your “rainy day” emergency fund.
Because the Savings Account saves interest on your mortgage rather than attracting attention, there is no tax to pay on anything you put in there. In any case, this is particularly attractive to Higher Rate Taxpayers – they love Offsets!
In terms of negative factors, you do pay for a few of these flexible features. Offset mortgages tend to have slightly higher interest rates and fees than other mortgages. Therefore, if you are not going to use the adjustable features, you’ll be better off with a more standard mortgage.
If you are due a lump sum for some reason such as a possible future inheritance, then an Offset Saver can be an excellent place to deposit the money until you decide what to do with it. The same applies if you get annual or quarterly bonuses in your job that you are not relying upon.
Consumers who like Offset Mortgages tend to stick with them and are less likely to remortgage as other customers. They can be hard to get your head around so you should consider all options available when you speak to a Mortgage Advisor in Leicester. Your Advisor will be able to show you the impact of how an Offset Mortgage can save you money over the course of the full term.
Many people plan to overpay their mortgages when they first take them out but never actually get around to it. Sometimes this is because they are nervous about paying too much off their mortgage, leaving behind little for future capital requirements. Again, Offsets are an excellent solution for this type of borrower as you can drawback your money at any time, but every day that your cash is in the Savings Account it’s working for you.