It pays to save, especially when it comes to Offset Mortgages.
You could make your money work harder for you by opting for an offset mortgage. Read on to find out more about how these work.
An offset mortgage is where you use the cash in your current or savings account to reduce the interest charged on your mortgage, and therefore reduce the overall cost of the mortgage loan.
It works like this; the borrower takes out an offset mortgage and current or savings account with the same lender. Funds that are held in the linked account are then charged a daily rate of interest for the money that is outstanding on the mortgage loan. For example, if you had a mortgage of £160,000 and you had £30,000 in an offset savings account, you would only be charged interest for £130,000 of the total loan amount.
Essentially the funds act as a temporary overpayment on the mortgage loan. However, you still maintain access to those savings, should you need to withdraw the money.
There are several options when it comes to repaying your offset mortgage. You can choose to repay at a fixed rate for a certain period, or get a discounted offer, or a tracker rate offset mortgage. Read more about these repayment options in our Guide to Mortgage Types.
Jeremy earns commission as a successful insurance salesman. He has £20,000 in savings and an offset mortgage loan for £160,000, over 25 years. Under the terms of his mortgage agreement, he pays interest on £145,000. His mortgage has a rate of 3%. Under this agreement, Jeremy could choose to reduce his mortgage term to 18 years and 8 months. His mortgage also gives interest savings of £57,722, which is how much money he would not be charged for the mortgage, by offsetting his savings instead.
If you have a large pot of savings and you need to buy a house, it may be beneficial to use this as a deposit. That way you can access a lower LTV mortgage deal.
If you are looking to help another family member get on the ladder you could try looking at our Guarantor Mortgage Guide.
Offset Mortgages offer you flexibility and access to your savings. If you would like to find out more about taking out an Offset Mortgage, get in touch with an independent mortgage advisor now.
My biggest concern was finding a mortgage with no strings attached. My options were clearly explained to me and I felt confident about the decision. Alice Silverman, Stoke-on-Trent
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATION EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
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