first direct
1.99%
Santander
2.19%
HSBC Bank
2.29%
Natwest
2.39%
ING Direct
2.49%
Market Harborough BS
2.75%
National Counties BS
2.99%
Principality BS
3.29%

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Offset Mortgage – The Flexible Option

1.99%

For some people, an offset mortgage can prove an extremely flexible yet tax efficient mortgage option. In its most simplistic form, the offset mortgage works by using a savings ‘pot’ to cancel out (or offset) against mortgage debt, thereby only paying interest on the actual debt.

What Benefits Does an Offset Mortgage Offer?

With an offset mortgage, savers also avoid having to pay tax on interest that their deposits may have otherwise incurred. Interest on offset mortgages is calculated on a daily basis, so interest is only ever paid on the actual balance. The flexibility of the offset mortgage makes it an attractive option for those working in sales or on a commission basis, or the self employed who’s earnings can fluctuate on a monthly basis.

Flexibility

Generally, there are two types of flexible mortgage that use the offsetting principle – those that link borrowers’ separate deposits to the mortgage balance (such as individual current and savings accounts) and those that use one generic ‘savings pot’. Where only one deposit exists, if more money is put into the deposit, then the mortgage balance reduces; if money is withdrawn from the deposit, then the mortgage balance is then increased.

Where individual balances are linked for the purposes of interest calculation, other debts such as personal loan repayments and credit card debt can be consolidated into the offset mortgage balance, with one interest rate paid across the entire debt. In this instance, another benefit is that customers can reduce the debt balance at any time with additional lump sum payments. Some offset mortgage deals also allow the borrower to withdraw from the balance, underpay or take payment holidays as required.

The repayment terms for different types of offset mortgage will vary from lender to lender, with some requiring regular monthly payments. Any savings above this amount are offset against the loan and reduce the interest charged on the mortgage. This is, in effect, a monthly overpayment that will eventually reduce the term of the mortgage, and the overall amount of interest paid.

In the UK, offset mortgages are still a relatively new phenomenon, with many companies stipulating different lending application criteria. Comparing and considering the plethora of complex mortgage deals to suit your circumstances can prove a demanding task. But with our comprehensive knowledge of the dynamic mortgage marketplace, as well as access to an extensive range of mortgage lenders, you’re sure to find the best offset mortgage deal to meet your needs.

For more information or expert advice on offset mortgages, or help in finding the best mortgage rates, please don’t hesitate to contact us today,and see how much you could save with MortgageFinancialAdvisor.co.uk.