Set off your Mortgage

One phrase you may have heard bounced around in financial or property circles is 'offset mortgage'. The word 'mortgage' alone can be daunting to some, yet an offset mortgage can mean financial freedom at a much quicker rate for some homeowners. An offset mortgage is best for those with substantial savings – anything from £10,000 upwards can really make a big difference, but even savings of £2000 will help repay the mortgage quicker. Homeowners with an offset mortgage can expect to pay off their debt up to 8 years earlier than someone with a standard mortgage. Of course, this will depend on how much you have saved in the first place! Basically, the more you save, the less you pay.Let me explain. If you wish to take out a mortgage of £120,000, you'd normally be paying the interest on that amount. But if you have savings totalling £20,000, and took out a £120,000 offset mortgage, you'd only have to pay interest on £100,000. It effectively looks at your savings as a part of the mortgage which has already been paid; therefore, although you won't earn interest on your savings during the term, you will avoid paying a substantial amount of interest to the lender. Combine this with an interest rate which is calculated daily, and the money you pay in will work harder for you, paying off your mortgage quicker.There are two types of offset mortgage, one of which is referred to as a current account mortgage. This type of mortgage requires you to bank with the lender; you will have a bank account with a very large overdraft (the mortgage), and all your incomings and outgoings go through this account. Every penny you put in goes towards paying off the mortgage amount, and the amount owed gradually reduces. The other type of offset mortgage keeps your finances in different accounts, which are linked.
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