5 Advantages To Swapping To An Offset Mortgage When You Remortgage

Many people think that offset mortgages are just for those who are well off

. They appeared in the UK twenty years ago, and have been labelled complex arrangements, carrying high levels of interest compared with standard mortgage contracts. Because of this, they are not a popular product for most people.

Today however, people are beginning to realise that they are actually quite straightforward. You do not need to be affluent in order to gain from using an offset product, and that's why we've created this guide to show you how an offset mortgage can be great for you.

1. Reduce The Interest: Offset mortgages work by adding your mortgage balance to a savings account balance to reduce the amount that you owe. So if you have a mortgage outstanding of 200,000 and your savings are at 20,000, interest only accumulates on 130,000 which is the balance minus your savings. This is a great way to reduce your mortgage quicker.

2. You Can Take Payment Holidays: Often you may be able to take a break on repayments for a certain period of time. You are also able to withdraw from your savings account whenever you wish, for example if there was an emergency.

It is also common with offset mortgage contracts that the lender will allow you to make overpayments on the loan when your cash flow is good, and underpayments when times are tough. This is a really useful feature, especially if your income is variable, for example if you earn commission or receive bonuses.

3. You Can Repay the Mortgage More Quickly: The larger your savings balance becomes, the less interest you will pay on your mortgage because interest is only due on the outstanding mortgage balance minus the savings amount. This means that your repayments will be lower each month.

That means that you can repay your mortgage more quickly and finally own every inch of the property that you live in.

4. Make Use of The Savings Facility: Since the 'credit crunch', which began three years ago, interest rates have fallen to a record low due to the low rate set by the Monetary Policy Committee within the Bank of England. For that reason, savings accounts have been earning very little interest, but by using your savings account to repay your mortgage earlier, you'll be putting your savings account to good use.

5. Cut Your Tax Bill Down: In the UK, anyone who pays tax on their income also has to pay savings tax at 20 or 40 percent. But with an offset mortgage, the savings account that is linked has a great little feature - you don't have to pay tax on it! This is great news for higher rate tax payers who want to cut their tax bill down.

An offset mortgage is only advantageous if you use them as they are intended, and if you have no savings or no disposable income to save then there is little point in opting for one.

by: Timothy Frodsham

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