What's an Offset Mortgage

powerwin

Hi

Could someone explain to me what an offset mortgage is?

Thanks

dimbo61

An offset mortgage can be either a tracker mortgage or a fixed rate mortgage and can also be either interest only or repayment.
The savings in the offset savings account means you pay less interest on the mortgage
IE mortgage £100,000 and savings in the offset £10,000 therefore you pay interest on £90,000
Check out First Direct and YBS for a better understanding
I think they are great

powerwin

Thanks. I see that offset mortgages typically allow a savings account to be offset against your mortgage balance, so that you receive no interest on savings but savings are offset on the mortgage instead, e.g. those offered by Scottish Widows.

I believe that some offset mortgages also allow a current account balance to be offset too.

Why do you think they're so great then?

Thanks

Wutang_2

powerwin wrote: »

Thanks. I see that offset mortgages typically allow a savings account to be offset against your mortgage balance, so that you receive no interest on savings but savings are offset on the mortgage instead, e.g. those offered by Scottish Widows.

I believe that some offset mortgages also allow a current account balance to be offset too.

Why do you think they're so great then?

Thanks

The fact that a mortgage is offset just means that any savings you have with the institution get taken from your mortgage balance before mortgage interest is calculated. It's a very useful feature, but probably not the most important aspect of the mortgage that you need to get right.

rinkydinkpanther

They are great if you are a higher rate taxpayer, as you would have to pay 40%tax on savings interest, but because you don't receive the interest as such - you save it on your mortgage instead - this is a gross rather than a taxed benefit.

I love mine because I have the effect of being almost mortgage free - I now pay less than £50 a month in mortgage interest - but on the other hand my savings are still liquid if I need them - so if I lost my job tomorrow I wouldn't have to sell my house to be able to unlock the money tied up in it.

dimbo61

With my mortgage I have unlimited overpayments provided I dont clear the mortgage !in the fixed rate period!
I can keep the savings in the offset when savings rates are low ( now) or move them to higher savings accounts like we have a few years ago.
Help from family and friends ( only with YBS )
Aim to be MF asap

gallygirl

I agree with the others - they are completely flexible so you can juggle your finances as you see fit. For example, mine is with Egg. Currently my mortgage rate is 1.74% :j(ends Dec ) but they have a savings account at 3.25% so I opened that & transferred the money from my offset over as even after tax it's a better deal. When the mortgage rate means it's better off in the offset then a simple click of the button & it's moved back.

When my deal ends I'll be looking for one which allows multiple savings and current accounts to be linked. That way [STRIKE]I could get my hands on OH's salary[/STRIKE] we would get even more benefit. I know Woolwich do this.

Word of warning though - they are dangerous if you are not disciplined. For example, would you be tempted to splash out on shiny toys every time you had some decent money in there? On the other hand, I did give myself a 'loan' from our offset to buy a car & pay it back each month as if it was a normal loan. Complete flexibility (& no late payment charges )