Offset
Offset mortgages enable you to use your savings to reduce the interest you pay on your mortgage. You open a savings and sometimes a current account with your mortgage lender. Although the savings and current account are kept separate from your mortgage debt, the amount you have in these accounts is offset against the amount you owe on your mortgage to reduce the interest you pay.
For example, if you owe £200,000 on your mortgage but have £50,000 in savings, you’re charged interest at your mortgage rate on £150,000.
A current account mortgage works in a similar way to an offset mortgage but your mortgage, current account and savings are all kept in one account rather than keeping everything separate.
- You pay less interest on your mortgage debt
- You retain access to your savings and can withdraw them at any time
- As you do not earn interest on your savings, there is no tax to pay
- Interest is calculated daily so your money starts working as soon as it hits your account.
- Offset rates tend to be higher than on non-offset deals because of the added flexibility. You may need significant savings to make it worthwhile
- If you withdraw your savings, you pay more interest on your mortgage
- If you opt for a CAM, you will constantly be in the red as you have a single overall balance.
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