Flexible mortgage

Do you want your savings to work harder?

Matthew Barrand Uncategorized

Do you want your savings to work harder, but feel uncomfortable with taking any investment risk? – then a Flexible Offset Mortgage could be for you…

Very simply described, an Offset Mortgage is a way of using the credit balances in your savings and current accounts including ISAs, to help reduce the mortgage balance you are charged interest on.

By linking your savings to your mortgage, you can make your money work harder

Any savings and current accounts you choose to link to an Offset Mortgage will not earn interest,
but the more you hold in them, the more mortgage interest you will save. As interest is calculated daily, even savings held for a few days will reduce the mortgage interest charged. You can still have instant access to your savings whenever you want, as they are not part of the mortgage loan.

How does it work?

Taking the benefit later – term reduction. This could be ideal if you want to pay off your mortgage early. You make your regular monthly mortgage payment but the mortgage interest you save is used to reduce the balance each month and pay off your mortgage earlier – this could be days, months or even years earlier, depending on how much is offset against your mortgage.

Taking the benefit now – payment reduction

Payment reduction could be ideal if you want to reduce your monthly expenditure. The mortgage interest you save one month is used to reduce your monthly mortgage payment in the following month.

Your monthly payments will therefore depend on the credit balance in your linked savings and current accounts during the previous month.

Offsetting can make sense, whatever the level of interest rates

By offsetting, you are effectively getting interest on your savings at the full mortgage rate. For example, if rates are low and affecting the returns you get on your savings accounts, you may find your savings work harder for you with an Offset Mortgage. This is because mortgage interest rates are typically higher than the rates you can get on your savings accounts.

For example, if your mortgage rate is 3%, your savings and current account balances would be offsetting the mortgage interest at that rate.

Tax efficiency

As no interest is earned on your linked Current and Savings Accounts, there is no tax to pay on savings interest received. This may be particularly efficient if you’re a higher rate tax payer.

Is an Offset Mortgage right for you?

If you have savings or a little leftover each month, an Offset Mortgage could suit you – this applies whether you’re re-mortgaging or buying a new home.

Your situation

The benefits of an offset mortgage



You want to save now, as well as pay off your mortgage faster.

 

Your savings could work efficiently until you need them – and at the same time you could either reduce your monthly payments or the term of your mortgage.

You want to save regularly towards your annual tax bill. of your mortgage.

You want to be able to dip in and out of your savings as you need them.

 



You are self-employed or in a job where your income is variable and may consist of additional payments, such as bonuses or commission.

You have other sources of income such as rent.

 

You are self-employed or in a job where your income is variable and may consist of additional payments, such as bonuses or commission.

You have other sources of income such as rent.

As interest is calculated daily, any income is variable and may consist of additional regular monthly overpayments or large payments
to your offset accounts will start to save mortgage interest immediately.