Offset Mortgages Information
Offset mortgages make use of savings that you have to reduce or ‘offset’ the amount of interest that you pay on your mortgage. The savings account must be with the same company that you have the mortgage arrangement with.
Offset Mortgage advice from WPP Financial Services, Rochester, Medway, Kent could help with this.
Offset mortgages might be a good idea for those with savings as they can be used to reduce the monthly mortgage payments.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Offset mortgages can link to your current and savings accounts and, if you have funds in these that are generating interest, it can be arranged so that these can offset i.e. reduce the amount owed on the mortgage loan. As the interest on your savings is used to reduce the mortgage amount, you won’t be earning any interest on the money in your savings or current bank account itself.
Offset mortgages can be beneficial as they are reducing the monthly payments you have to make by using the interest from your savings and can be set up to reduce the length of time, the term, over which you pay the mortgage. Basically, the total sum of your savings is deducted from the mortgage amount you pay interest on resulting in lower monthly payments.
Example Offset Mortgage
If you have a £230,000 mortgage with a mortgage rate of 5%, you would pay £11,500 interest each year
You have £20,000 in savings in a linked current account and decide to offset this against your mortgage.
You therefore now pay interest on just £210,000 of your mortgage loan reducing your payments from £11,500 to £10,500.
You will, however, lose the interest on your savings which, with a 1.5% interest rate, will be 1.5% of £20,000 = £300 a year.
Total Savings by Offsetting the Mortgage Annually = £700. An offset mortgage therefore deducts more interest than you’d usually gain on your savings, so as a result your money does more for you.
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If you take money out of your savings account that is linked to your Offset Mortgage, you will therefore reduce the amount that you can offset against the mortgage. Some mortgage deals will also state that you have to keep a minimum balance in your account.
The Offset mortgage rate deals include both fixed and variable interest rate as with normal mortgages. However, they can be more expensive than other mortgages although this depends on your individual situation and the value of your savings. Also you often only get a lower loan-to-value – LTV – than standard mortgages, so may require a larger cash deposit.
You won’t earn interest on your savings and/or current account. Your current or savings account and mortgage have to be with the same company to benefit from an offset mortgage.
A reason for choosing an Offset mortgage might be that you will always have access to some additional money if you need it. You could, of course, increase the amount you would add to a deposit on a standard mortgage which would reduce monthly repayments.
You can choose to reduce your monthly payments or overpay each month, which means you pay it off sooner.
For more information and to find out about the best solution for you contact WPP Financial Services.
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