What Are Offset Mortgages? 🤔

So, last week we discussed Let To Buy as a strategy and how best to utilise it to acquire more properties.

This week I’d like to focus on Offset Mortgages.

What exactly are they?

Who are they for?

Why should you consider them?

And most importantly... how do they work?

What is an Offset Mortgage?

An offset mortgage links your mortgage to your savings account. It lets the interest you could’ve earned on the savings contribute towards paying off your mortgage repayments instead.

How does it work?

If you’ve got a standard mortgage, the amount of interest you’ll have to pay is based on the total loan. If you’ve got an offset mortgage, the interest is paid on the total mortgage minus whatever is in the savings account or accounts linked to the loan.

For example, if you have a mortgage of £200,000 plus £40,000 in a linked savings account, you’ll have to pay interest charges on the difference – that is, on £160,000 of your mortgage. This means that, depending on the deal that you have with your lender, an offset mortgage could let you:

• overpay your monthly repayments (therefore paying it off sooner),
• have smaller repayments, or
• pay now based on the full mortgage calculations now but reduce your future payments.

You also won’t be charged tax payments on the money that you’ve saved by offsetting your mortgage with interest from your savings account.

However, having an offset mortgage means that you’ll forgo any interest that you could’ve otherwise earned from any linked account or accounts. As offset mortgages are not a popular offering, your choices could be limited. You may also find that you’ll typically face higher interest rates on offset mortgages than on standard ones.

Who are they for and why should you consider them?

Offset mortgages are often a good choice for the following people:

• Self-employed - Keeping large sums of money in your account to cover tax bills or other one-off expenses.
• Higher rate taxpayers - They are not charged additional tax on the money that they have saved, as the savings offset against the mortgage balance. This makes it especially attractive to higher rate tax payers.
• Property Developers - As funds are required for deposits and/or renovation money, the flexibility of being able to redraw money when required at both speed and low cost makes this particularly appealing.

Those receiving larger bonuses as well as those with children at university or private schools like the freedom of being able to overpay large sums and take funds back when larger fees are due.

This is a brief overview and doesn’t fully take into account someone’s personal circumstances. There are also other examples of when offsetting suits clients.

To discuss further, the best thing to do (as always) is to reach out to our team here and one of our specialists can go through everything with you.

Have a great day and thanks for reading!

Steve

Express Mortgages is a trade name of Express Mortgage Services Ltd. Express Mortgage Services Ltd is authorised and regulated by the Financial Conduct Authority. [Reg No: 474427] Company registered in England & Wales no. 05167662

Your home may be repossessed if you do not keep up repayments on your mortgage.