Offset Mortgages

An Offset mortgage gives borrowers the option of paying off their mortgage early. While this won’t be in the realm of possibility for every borrower, it is for some. It is for these borrowers that this mortgage has been designed. An Offset mortgage gives home owners the ability to pay of their loan ahead of time, saving them money in interest and fees in the process.

With an Offset mortgage, a person will set their savings against their mortgage. All earning interest on their savings deposits will be given up and that same amount in interest will be waved from all mortgage payments. Over time, this can help individuals save a substantial amount of money. It also offers a number of tax advantages.

An Off-set mortgage allows borrowers to reduce their mortgage debt by using their savings. As mentioned above, it is also very tax friendly. A person with this type of mortgage does not have to pay taxes on whatever interest they would have earned on their savings.

A person or couple that opts for an Off-set mortgage loan is effectively overpaying but in a way that gives them the option of using the money if they need it. The extremely low interest rate the borrower(s) is paying is helpful in reducing costs. Interest is calculated by taking the difference between the interest a person would have collected on their savings and the interest on the mortgage loan.

It is because interest is calculated daily that any deposit made into a person’s savings account helps to lower their mortgage debt. Right now, with interest rates low, savings accounts are collecting higher interest rates than average.

Offset mortgages, depending on the lender may differ in how they are setup and what is allowed. Some banks or lenders will allow borrowers to not only link their savings to the mortgage but also current accounts. Others will not. Some will only allow borrowers to link to a savings pot.

Offset mortgages which force borrowers to place all savings deposits into a separate pot, are considered the most simplified. All deposits are linked and interest is calculated based on how much money is in the pot. Another option, briefly mentioned above, involves the use of current accounts, also referred to as Current Account Mortgages (CAMs). These combine a person’s mortgage and their savings. For instance, if a person had £5000 in the current account and a mortgage of £100,000, their balance would read £95,000. The amount of interest a person pays is calculated based on the balance. All savings deposits, reduces the amount owed.

It is possible for borrowers to draw funds from their account without having to re-mortgage. However, there are restrictions. A person will need to talk with a lender to determine what these are.

In the past, Offset mortgages were very expensive. In fact, they were substantially more costly than regular home loans. In an effort to make the loans more competitive and enticing to borrowers, that has since changed. Today, there is not much difference, in terms of cost, between offset mortgages and normal ones. Lenders have worked hard to reduce their costs in an effort to make the loans more attractive and to gain customers.