Offset Mortgages
An offset mortgage links your savings, and in some cases your current account, to your mortgage. This means that instead of earning interest on your savings, you pay less interest on your mortgage. So, for example, if you have a mortgage of £125,000 and you have £25,000 in your linked accounts, then your monthly interest would be calculated on £100,000 instead of the balance of £125,000. This type of mortgage is only available when the savings account and mortgage account are with the same provider. Offsetting can be more financially advantageous to the borrower.
Offset mortgages may be used by homeowners to reduce monthly payments or shorten the term of their mortgage. By basing their monthly payments on the full mortgage of £125,000 and paying more each month than the lender is requiring, the borrower would be able to shorten the term of their mortgage. If the homeowner was to base their monthly repayments on the offset figure of £100,000, the term of their mortgage would remain the same but the monthly payments would reduce.
With an offset mortgage, as the borrower's savings are not earning any interest, the homeowner may pay less income tax. Besides the monies in savings accounts, various lenders will permit the use of cash in IASs or current accounts against their mortgage. If money is withdrawn from any of the accounts that are linked to the mortgage, the savings offset against their mortgage will reduce.
You can get offset mortgages on a fixed or SVR of interest basis.
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
TAX TREATMENT IS BASED ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN THE FUTURE.
TAX PLANNING IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.