Offset Mortgages Can Save You Thousands

Offset Mortgages Can Save You Thousands



Offset Mortgages Can Save you​ Thousands
Offset mortgages offer an​ attractive alternative to​ traditional mortgages and can save you​ thousands over the​ long term.
Buying a​ home is​ an​ exciting time,​ and it​ is​ the​ biggest financial purchase that most people undertake .​
The majority of​ homebuyers cannot afford to​ buy a​ house outright and it​ would be impractical to​ save up the​ full amount of​ the​ house before you​ bought it,​ because you​ would need somewhere to​ live in​ the​ meantime .​
Therefore,​ the​ usual practice is​ to​ take out a​ mortgage – a​ loan secured against the​ property you​ are buying.
In the​ United Kingdom,​ there are different types of​ mortgages to​ choose from,​ which include a​ mortgage that is​ a​ big success in​ Australia,​ from where it​ originated .​
It is​ called an​ offset mortgage .​
Basically,​ offset mortgages use the​ interest earnt from your savings accounts and current accounts against your mortgage interest; and as​ a​ result this reduces your overall mortgage repayments.
With offset mortgages,​ your mortgage account runs alongside all your other accounts,​ and the​ net balance for all the​ accounts is​ calculated,​ normally on​ a​ daily basis .​
The interest is​ then worked out on​ the​ overall total you​ have in​ your accounts .​
All the​ interest you​ have earnt from your savings and current accounts goes straight into your mortgage account.
As with most mortgages there are variations around this theme,​ such as​ a​ current account mortgage (CAM) .​
Your salary is​ paid directly into your mortgage account where it​ immediately reduces your mortgage balance .​
You can then draw against the​ account for your normal spending as​ you​ would with an​ ordinary account .​
The mortgage balance and interest is​ calculated daily,​ so even if​ money were left in​ your account for a​ short period,​ it​ would still have some positive impact on​ the​ cost of​ your mortgage.
Offset mortgages are very efficient .​
They will enable you​ to​ dedicate the​ bulk of​ your savings to​ reduce your mortgage,​ which can save you​ thousands of​ pounds from the​ mortgage cost,​ and allow you​ to​ pay off your mortgage early .​
You would still have the​ flexibility to​ divert your savings to​ other uses,​ however you​ would give up some of​ the​ savings made on​ your mortgage.
The drawbacks to​ offset mortgages,​ is​ that the​ mortgage interest rates can be higher than the​ deals you​ could get on​ other types of​ mortgages,​ and there are often no special offers,​ such as​ low discounted rates for the​ first few years .​
If you​ tend to​ keep a​ low balance in​ your current account and have little in​ the​ way of​ savings,​ the​ benefits you​ get from combining the​ accounts may be too small to​ outweigh the​ extra cost of​ the​ offset mortgage .​
You also need to​ be efficient with keeping track of​ your financial outgoings,​ especially in​ the​ case of​ a​ CAM where you​ have just a​ single account for both your mortgage and current account.
You do not necessarily need an​ offset mortgage to​ pay off your mortgage early .​
You could have an​ ordinary mortgage and a​ completely separate savings account .​
Then,​ occasionally you​ could use your savings to​ pay off a​ chunk of​ your mortgage,​ which could end in​ you​ paying off the​ mortgage early .​
However,​ unlike offset mortgages,​ you​ would have to​ pay the​ tax that was earnt in​ the​ savings account.
An offset mortgage could be the​ right mortgage choice for you,​ if​ you​ are good with your finances,​ generally have a​ high current account balance,​ have reasonably high savings and you​ are a​ taxpayer,​ particularly a​ higher rate taxpayer .​
In the​ United Kingdom,​ an​ increasing number of​ financial lenders are offering offset mortgages because of​ the​ benefits they offer to​ the​ customer.




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