The advantages of an offset mortgage

An offset mortgage allows the borrower to link their savings into their mortgage account. Clients will then only pay interest on the difference between the savings balance and the mortgage amount which in turn will reduce the mortgage interest paid. Although the money put into a savings account linked to the offset mortgage will not earn interest, the money saved through paying interest only on the difference rather than the full mortgage amount can provide more value in the long term. 

 

The advantages of an offset mortgage..... 

 

Can be easy access to money. When you over pay on a standard mortgage to reduce the balance and term, you can no longer access that money. With an offset mortgage, the money in the linked savings can be withdrawn at any time with no penalty (the offset benefit will shrink for any withdrawals). 

 

The interest you save through the offset savings does not count towards personal savings allowances. 

This will reduce the mortgage term or help lessen the impact of rising interest rates on the monthly mortgage repayments.  

 

Borrowers can choose to decrease either the mortgage term or the amount they pay each month. With an interest only mortgages, the monthly payments or outstanding balance can be reduced. 

Coventry Building Society have an example calculation.... 

 

On a 25 year term £100,000 offset mortgage fixed at 5.85% until 2029, borrowers who initially put no deposit into a current or savings account but save £100 a month could reduce the time until they pay off their mortgage by three years and nine months compared to a standard five-year fix at 5% (as of August 2023). 

 

If a borrower is keen to pay off their mortgage early and has the financial resources to do so, an offset mortgage could be a good option. However, for borrowers with high income and high outgoings, an offset mortgage may not be the best option as interest rates on a regular savings account may offer more value than the offset benefit. 

 

To find out more about offset mortgages, contact me at victoria@hdconsultants.net or call 07305 396811