Elizabeth Grant writes exclusively for The Mortgage Broker Ltd specialist mortgage websites. To read more articles from Elizabeth on offset mortgages explained please visit the Offset Mortgage Centre.
Its good to know that in the face of global financial meltdown and credit crunches, figures show more Brits are saving more. If you are one of these people who have gone against the credit trend and saved rather than spent, why dont you make the most of all that hard work and offset the savings against your home loan with an offset mortgage?
If you have your savings in a high interest account, they will be making you money and thats great. But its never enough is it? After tax, that interest doesnt seem worth it, and it inevitably gets spent a lot more quickly than it was accrued. So use the money and make the most of it with an offset mortgage and take advantage of the security you have built up to make some massive savings.
What is an offset mortgage? Well, essentially an offset mortgage is one that allows the borrower to put any money up against the mortgage. So you would only owe the interest of a 80,000 mortgage if you had a 100,000 mortgage with 20,000 offset against it, for example. So the more you offset, the less you pay each month.
But whats wrong with just investing the savings into the property and take out a smaller, regular mortgage? Well that is a perfectly valid way to invest your money, but the money is then tied up in the property, locked away. With an offset mortgage, the money is still there for you to spend if needs be and so no need for secured loans or remortgages in the future. Its a security, not an investment.
Not only are the savings as accessible as they would be in your regular savings account, but the interest made in the offset mortgage account does not accrue interest, so is not taxed. Interest accrued in regular accounts is deemed earnings by the taxman, so up to 40 percent of it is fair game - but as the savings are a security against your property, the interest bypasses that law, so you dont owe a penny. With an offset mortgage, you dont pay tax - you just save money.
There is also no reason why you cannot add other accounts to your offset mortgage and add your current accounts to top up the security and double the repayment savings. Also, you can add credit card balances onto the current account, slashing a few percent points from any repayments on that debt.
An offset mortgage is the perfect way to make money without lifting a finger, the debt amount drops, the rate drops and hopefully if your house price rises, you will own more and more of your home. And as you save on the mortgage, you will have more left over at the end of the month so why not save that too? Soon, the savings will start to stack up and the mortgage payments will diminish.
An offset mortgage is the perfect choice for those looking to let their savings do a bit more work for them. And why shouldnt they? You invested your own hard work into saving in the first place.
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