Pros and cons of an offset mortgage

April 25, 2016 by Brendan O'Neill

Advice & Tips

Although the costs of a mortgage have reduced in recent years, thanks to the extremely low interest rates, an offset mortgage can save a borrower even more money.

An offset mortgage is generally a consideration for those with savings, as the savings are “set off” against the outstanding mortgage, reducing the amount of interest charged on the loan. Although the loan would usually be set off against your own savings, it is occasionally possible to link the amount outstanding to the savings of a relative to reduce the interest payable.

As the interest rates for a savings account are low at the moment, a borrower may save more money by offsetting a mortgage against savings. The amount saved using this method will also be tax free. Although it is possible to overpay on a standard mortgage, you would not be able to get the savings back, leaving the borrower without any financial backup if circumstances changed. When a person takes out an offset mortgage, they don’t commit to tying up savings for an indefinite period. Obviously, if the savings dwindle, interest is charged on a higher amount.

There are a couple of disadvantages to be aware of when looking at offset mortgages, but a CeMAP-trained mortgage adviser will be able to help you decide whether it is the most suitable option. One of the drawbacks is that the interest rates for an offset mortgage tend to be slightly higher those of a standard mortgage. However, as rates are improving, it may be the beneficial option for you.