Offset Mortgages & Mortgage Offsetting Quotes

Offset Mortgages

A fairly new innovation in the mortgage market, Offset mortgages operate on the basis that interest accrued on savings is usually far less than the interest which is paid out on debts. With this mortgage, a nominated savings account is linked to the mortgage repayment. Then the interest that would have been earned on the savings is set aside, and the balance of the savings is applied to reduce the overall mortgage balance.

Put quite simply by way of an example: A mortgage of £200,000 is linked to savings balance of £20,000, and the savings amount is then ‘offset’ so that interest would only be accrued on £180,000. This means that instead of receiving, for example, 3.5% on the savings balance, a greater savings of, 6.5% may be made overall.

There could also be substantial tax advantages with this type of mortgage, particularly for those on a higher tax band as there would be no penalties on the reduced amount of interest paid.

However, the savings would have to remain untouched in the account as they are now linked directly to the mortgage. And, of course, the higher the amount of savings the lender may have to offset, the greater the advantage. Offset mortgages may be particularly attractive to the self-employed, in consideration of the tax benefits or for those who may be in receipt of large yearly bonuses with which they can boost their savings dramatically.

It may be useful to note that some offset deals in the past have been unattractive because rates have tended to be set in the region of one or more per cent above competitive fixed rate deals, though this has lately shown signs of improvement.

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