Is an offset mortgage the best option for you?

While the interest rates on savings accounts are so low, some home buyers are considering an offset mortgage, which may help them to make substantial savings over the term of the loan.

An offset mortgage allows a borrower to use their savings and current account to pay extra on their mortgage. As this reduces the amount of the loan outstanding, the interest charged is much less, often thousands of pounds.

Most lenders will permit overpayments of up to 10% but if this is exceeded during a year, early repayment charges will be added. Using surplus income to overpay on your mortgage will reduce the term of the loan and will also reduce the amount you repay. While interest rates on savings accounts are so low, it can be beneficial to consider moving to an offset mortgage. Your mortgage would be linked to a savings account, and any money put into this will be used to reduce the balance of the loan. Interest is only charged on the outstanding balance.

This type of mortgage suits someone who has a lump sum which they don’t need at that time. Rather than sitting in a savings account attracting low rates of interest, it can be used to reduce the mortgage amount and cut the interest which is charged. However, as with all mortgages, there may be drawbacks which is why you are advised to seek advice from a CeMAP qualified mortgage adviser who can help you consider all options.



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