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Le Moor · (#1 (**permalink**))

Folks are you aware of the benefits to made from the "Offset Mortgage?"

If your goal is to pay off your mortgage early or reduce the amount of interest paid to your lender, then you should take a look at this mortgage it could potentially save you thousands of pounds in saved interest payments.

Basically the offset mtg is a mtg which uses the balance in your savings/current accounts to offset against the mtg balance. What this means is that the monies in your savings/current acct will no longer gain interest, instead the interest, paid at the same rate as the Mtg, will offset against the main mtg balance.

For example:

If you have a £100,000 mtg and £50,000 in savings it would mean that you no longer gain interest on the £50,000 savings but instead they will be used to offset against the mtg balance. Hence you will now only be charged interest on £50,000 of your mtg (£100,000 mtg - £50,000 savings = £50,000 interest charged) This is as long as you have the £50,000 sitting in your account/s.

This brings obvious and not so obvious benefits.

Firstly continuing with the above example, you are now effectively getting a £100,000 mtg for the price of a £50,000 mtg. You can now choose to have to two outcomes with this arrangement.

(1) you can have your payment reduced to reflect the new amount of interest paid. The payment on a £50,000 mtg is going to be half that of a £100,000 mtg. therefore throughout the period you are "Offsetting" you would have paid half the amount of interest to you lender.

(2) You can opt to continue paying the same amount you would have normally been charged for the the original £100, 000 mtg and this would mean that because you're only be charged interest on £50,000 of the mtg, you are now making an overpayment. The outcome being if you're making overpayments to your mtg it means that your term would reduce quicker and you end up saving on the overall amount oif interest charged.

An example taken from Barclays Website:

Calculation based on the above product; repayment mortgage of £100,000 over a 25-year term that has been offset with £20,000 savings, resulting in a reduction in mortgage term of 9 years or a saving of £51,011 in overall interest.

The not so obvious benefits are:

1, if the interest paid on your mtg is more than the rate you get on your savings, then you are making your money work harder and smarter for you.

2, All interest "offset" is totally TAX FREE, which the same cannont be said for your savings unless they are TAX Free savings like ISAs etc which inidentally can also be "Offset".

3, These type of mtgs normally are totally flexible. You can make as many overpayments as you like without penalties, or you can switch to another Lender or pay off the balance in full at any time, without being penalised. There are no early redemption penalties or tie ins.

A point which to some could be a negative( ie those with not enough savings to make an impact or those whos need for stability in a fixed rate is greater) to be made is that you cant normally get these mtgs on a Fixed rate basis. They come as variable rate mtgs meaning they track the Bank Of England base rate. When "it" goes up so does your rate, and when "it" comes down so does your rate again.

A point to consider. As a general rule it normally isnt recommended that you would want to take this mtg unless you have at least 10% of the Mtg balance to Offset in savings. Ie on a £100,000 mtg you have at least £10,000 in savings to Offset. Another point or question many ask is about access to savings. You can still have immediate access to all saviings. It just means however much you draw out of your accounts is the amount of monies which are no longer going to be Offset, therefore you would then be charged interest on the mtg accordingly.