Deciding on the right mortgage product can be a difficult decision to make, with such a variety of different mortgages available, homeowners face a challenge to find the best option for their situation.
One product type that is often overlooked is an offset mortgage. These products let you link your current and savings accounts with your mortgage to reduce the balance that the lender charges interest on.
This differs from a standard mortgage, where your interest payments are based on the total amount you owe, meaning with an offset mortgage you could potentially save thousands of pounds in mortgage interest payments.
For example, if you have £20,000 in a savings account that’s linked to an offset mortgage of £300,000, you would only pay interest on the remaining £280,000.
The saving you make on each payment can then be used in one of two main ways. You can use the interest to reduce the amount that you need to pay each month over the term that is agreed in your mortgage offer letter.
Alternatively, homeowners can use savings to help reduce the length of the mortgage by offsetting savings against your mortgage balance and reducing the amount of interest charged.
You will still be able to access the cash whenever you need it, although some lenders will require a minimum balance and by making a withdrawal your repayments will go up as you are no longer using that money to offset the mortgage.
For higher-rate and additional-rate taxpayers, in particular, offset mortgages can be a tax-efficient way to use your savings, as you don’t pay tax on savings income, or use the personal savings allowance because you won’t be earning interest on your cash.
An increasing number of parents are also turning to offset mortgages as a way to help their children onto the property ladder, as parents can keep savings in an offset account linked to their child’s mortgage, helping to lower interest payments and pass the lender’s affordability checks.
For help and advice regarding offset mortgages, contact a member of our expert team today.