Your money-making expert. Financial journalist, TV and radio personality.
An offset mortgage can give you ultimate flexibility. They still come in fixed or variable deals but allow you to use them as a place to put your savings. With savings rates at record low levels offsetting your mortgage can be a good idea, and they help keep tax away from your savings.
Find out what they are and how you can get one in the MoneyMagpie guide to offset mortgages.
Offsets are the most flexible of flexible mortgages. You can overpay, underpay, borrow back money you have paid in and massively cut down on the amount of interest you pay by ‘offsetting’ any money you have in your savings and current account against your home loan.
The way they work is that the bundle up your mortgage with your savings accounts and your current account. Any money you have in the ‘plus’ side (that’s in your savings and current accounts) are offset against your mortgage. So then the interest you are charged is calculated only on what is left.
So, for example, let’s say you have a £100,000 offset mortgage and you have £20,000 in your savings and £1,500 in your current account. When the mortgage company come to calculate how much interest you should pay on your mortgage they take away £21,500 from your loan and only charge you interest on £78,500. So you can see that the more you have in savings, the less interest you will pay overall. Please bear in mind that you would not receive any interest on your savings that are offset against your mortgage.
You can have lots of different savings ‘pots’ in this account too which will help if you are saving for specific things as well as wanting to pay off your mortgage.
When it comes to paying your mortgage each month, it works like any other mortgage: you have a set amount you have to pay in and there are problems if you don’t pay it! However, the great thing is that even though you pay the same amount each month, if you have savings offset against the loan, more of the money you pay in goes into paying off the capital (the actual money you borrowed in the first place) rather than being wasted on interest.
Otherwise, offset mortgages are like other mortgages: you can get repayment ones, interest-only, trackers (traditionally the majority of offsets have been trackers), fixed rates and so on. Which one you go for depends on your situation and what you think interest rates are going to do in the next few years. Find out which is the best one for you in our mortgage comparison service.
Offset mortgages are best for:
One really good reason for having an offset mortgage right now is that you can effectively get better rates on your savings. While savings rates are low at the moment (you can find the best savings rates here), with an offset mortgage your savings will get a much better return. If your mortgage is, say, 3% then your savings will, in effect, make 3% net because that is what you will save on your mortgage and you don’t get charged tax when you are paying off a debt rather than accumulating savings interest. Use L & C offset calculator to work out of an offset mortgage is right for you
Offset mortgages can be a dangerous tool in the wrong hands. They’re so flexible that you could find you never pay yours off. As you pay off your mortgage you can borrow the money back again which can be handy if you have an erratic income and need to have an easy, cheap overdraft (that’s one way you can use it) but you have to be disciplined enough to go back to paying off all the capital as soon as possible.
Offsets are also not right for you if:
It’s really very simple. Just go to our mortgage comparison service and speak to the excellent mortgage advisers at L & C.
All you need to do is give them details of your earnings and what money you have as a deposit. Let them know that you’re interested in an offset mortgage and they will go through the best value loans in that sector.
Check our comparison pages for the best offset deals around at the moment. If you scroll down the page you will see the best-buy tables including best-buy offset mortgages.