What is an offset mortgage?
An offset mortgage can help reduce the amount of money you have to pay interest on, and as a result help you to pay off your mortgage more quickly, by linking your savings and your current account to your mortgage. The mortgage balance is reduced by ‘offsetting’ it against your savings.
How does an offset mortgage work?
Here’s an example - if you have a mortgage balance of £100,000, but you have £15,000 in current and savings accounts, then an offset mortgage would mean your monthly mortgage interest would only be calculated on a sum of £85,000.
What are the pros and cons of offset mortgages?
- You can use your savings or your current account balance to reduce your monthly payments
- You could pay off your mortgage more quickly by keeping monthly payments the same
- The money you’d save on mortgage interest is probably higher than you’d earn in a standard cash savings account
- You still have instant access to the money you’ve offset if you need it
- Offset mortgage rates tend to be higher than those on standard mortgages
- There are fewer choices with an offset mortgage than with a regular mortgage
Is an offset mortgage right for you?
If you don’t have any savings, then an offset mortgage isn’t going to do much for you. And as they often come with higher interest rates, it may not be worth getting one. But if you do have savings, even a small amount, then it could be worth considering an offset mortgage to make the most of your money and reduce the interest you’re paying on your mortgage.
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