Is It Worth Getting an Offset Mortgage Account?
If you have money in a savings account that isn’t earning much interest, an offset mortgage account may be a better option to reduce the amount of interest you pay. Today in this article, we discuss offset mortgage accounts, so consider the benefits and see if they’re good for you.
What is Offset Mortgage?
Your mortgage is connected to your savings account with an offset mortgage. Therefore, the amount you pay interest on is reduced by the value of your savings, reducing your monthly payments.
You will not earn interest on your savings if you have an offset mortgage account. However, as most people pay more interest on their mortgage than on their savings account, an offset mortgage may save you money. For better understanding, you can hire an offset mortgage broker in London & Essex.
How Does Offset Mortgage Work?
The value of your funds is affected by an offset mortgage. Instead, they’re put into an interest-free savings account and ‘offset’ against your mortgage. If you have £20,000 in savings and a £150,000 mortgage, you’ll only have to pay interest on the remaining £130,000. For example, With a 5% interest rate, your payments will be reduced from £7,500 to £6,500, saving you £1,000.
Also Read: Ultimate Guide of Mortgage Guarantee Scheme
Is it still possible to withdraw funds from an offset account?
You can still take money out of your savings account with an offset mortgage. However, if you withdraw money from your savings, it will no longer be used to offset your mortgage, and your monthly payments will increase. You may also be required to get a certain amount of money in your savings account. Before choosing an offset mortgage agreement, make sure you know a minimum balance requirement.
Is using an offset account to pay down my mortgage faster?
You can choose to pay the regular interest rate on an offset mortgage, but because some of the money you owe is offset by your savings, you’ll be effectively overpaying on your mortgage. On the other hand, it means that your debt will be reduced faster, and your mortgage will be paid off sooner.
An overpayment may be possible with the other types of mortgages, but with an offset mortgage, the money stays in your savings account, where you can use it anytime you need it.
Also Read: Is Now the Right Time to Save and Offset?
Pros and Cons of Offset Mortgage:
- The amount of interest saved will always equal the amount earned from a savings account.
- Borrowers can keep a certain amount of control over their savings.
- It’s possible to connect to ISA accounts as well.
- Can pay off debt faster than a standard loan or lower monthly payments.
- Allows parents to support their children in purchasing their own home.
- Helps borrowers to reach the savings interest threshold without paying any tax.
- Mortgage-linked savings accounts do not earn interest.
- If the borrower takes money out of their offset savings, their mortgage payments may increase.
- Rates on mortgages may be higher.
- Offset mortgages have a lower Loan to Value (LTV) ratio than traditional mortgages. Therefore, offset arrangements may require a deposit of up to 25% of the property’s value in some situations.
- The connected savings account and mortgage must be with the same financial institution in many cases.
- In comparison to the overall industry, the offset market is small.
- Borrowers may have difficulty finding a contract or rate that meets their demands.
If you think an offset mortgage is right for you, you can hire an offset mortgage broker in East London & Essex for complete information. A knowledgeable offset mortgage broker like Mountview Financial Solutions assists you with offset mortgage rates, as well as more difficult and uncommon products like offset buy to let mortgages.