If you’re looking at getting your first mortgage, or if you’re buying your second home and looking into the different options, have you thought about an offset mortgage? Probably not, because many people may not know that they exist. As a mortgage broker in Huddersfield, we’ve set out our advice around this subject…
What is an offset mortgage?
Firstly, let’s explain what this type of mortgage is. An offset mortgage is when you have a savings account and a mortgage with the same lender and your cash savings are used to reduce – or ‘offset’ – the amount of mortgage interest you’re charged.
How does an offset mortgage work?
Instead of having a standard interest savings account with your bank, you place your savings in an offset account and you’ll only pay interest on your mortgage balance, minus your savings balance.
For example, let’s say you owe £100,000 on your mortgage at an interest rate of 3% and you have £10,000 in savings. By placing the £10,000 in an offset account, you would only pay interest on £90,000 – saving you up to £300. If you chose to leave the money in a savings account, you might accrue 2% interest on the £10,000, equalling £200 before tax.
Are there other benefits to an offset mortgage?
Another benefit is that because the interest charges are reduced, it means you can either pay the same amount each month, resulting in a shorter mortgage term, or choose to lower your repayments each month, which will save you money in the short term.
A second advantage of an offset mortgage is that once you place the savings in the account it isn’t locked away forever, so you can still access your savings if you need to make withdrawals.
If you’re a higher or additional rate taxpayer this type of mortgage can be tax-efficient. It can also allow you to make overpayments. Although, please note that early repayment charges may apply.
If you think you might be interested in finding out more and whether an offset mortgage is for you, get in touch on 07834 818805 or at email@example.com and book an appointment with us. We’re a mortgage broker in Huddersfield, specialising within the field of offset mortgages.
Please note: KB Mortgage Services is not able to provide advice on savings or tax.
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