If you are in the process of buying a house, then it is important that you know of all the mortgage options available to you.
Mortgage options have changed and evolved over time. First, mortgages were linked to a variable rate. Then fixed and discount rate mortgages offered homeowners some stability. Especially when it came to their mortgage payments each month. The latest in mortgage option innovation is the offset mortgage.
We all need some property buying help from time to time. This guide aims to provide you with the information you need to decide whether an offset mortgage is right for you.
In short, an offset mortgage links your other financial assets to your mortgage. It is applied and linked to your bank account and any other savings accounts, such as ISAs.
The mortgage lender then calculates the interest on the amount you owe, rather than the amount you have borrowed. Your monthly salary that is paid into your bank account will reduce the amount you owe on your offset mortgage. Savings also help reduce the amount you owe. As interest is calculated daily, you could pay less interest over the term of your mortgage.
For example, If you borrow £300,000, and have savings of £25,000, you only pay the interest on £275,000. This is the money that you owe, therefore, interest is only calculated on this amount.
If you have a monthly salary of £2,500, which is paid into your bank account each month, the total owed falls again to £272,500. Again, this reduces the interest accrued on what you owe.
The main advantages of using an offset mortgages are quite clear. The interest you pay could be a lot less as you use your other financial assets against the money you borrowed. In essence, you pay interest on what is owed. This can help you pay off your mortgage earlier.
In addition to the possibility of paying less interest, another benefit is being able to access your money when you need it.
Different lenders have different deals, so it is important that you find the right offset mortgage for you and your family. Having a flexible offset mortgage can help so shop around. Remember, your offset mortgage can be with a mortgage lender that is separate from whom you bank with.
An offset mortgage is not for everyone. They normally suit people who already have a substantial savings egg, as it can be used against the money you borrow. If you do have savings, it is important to remember that they will not earn any interest if offset against your mortgage. If you already pay the higher rate of tax, then an offset mortgage can be very beneficial. The savings made on your mortgage is not tax deductible.
Before you decide on whether an offset mortgage is right for you talk through all your options with an independent advisor.