Is An Offset Account Right For You?

If you need flexibility with your mortgage, then an offset account may be the right choice for you. An offset account sounds almost too good to be true, but it isn't. It works on the simple premise that if you have savings or credit then you have less of a debt.

Depending on your monthly income (and the terms of your offset mortgage), you can overpay, underpay, pay in lump sums and repay early. However underpayments and payment holidays could increase the mortgage term and/or the total amount payable. And as long as you don't exceed your borrowing limit you can draw out money when cash is in short supply and even take a payment holiday. This flexibility is why so many people now have an offset account. There are about 30 offset account providers in the UK* and about 10 per cent of mortgage holders now have an offset account**.

Offset Mortgage Account Types

If you are choosing an offset account, you should be aware that there are two kinds. These are current account mortgages and offset mortgage accounts. Both work on the same principle, but there is one important difference between these offset accounts, which has to do with how your money is managed. With current account mortgages all your money is in one account with a huge overdraft (or borrowing limit). In contrast, with offset mortgage accounts all your accounts are separate but linked. The type of offset account you choose will affect the tax you pay on your savings.

Who Needs An Offset Account?

Offset mortgages are a good choice for people with variable income. That means people like the self-employed, sales people who earn commission, company directors who earn annual or twice-yearly dividends, stockbrokers, analysts and other City workers who earn an annual bonus. If you're earning money each month but you can't be sure exactly how much, then you should consider an offset account.

Reduce Your Tax With An Offset Mortgage

An offset mortgage account may also be useful for higher rate taxpayers, who will pay less tax if their savings and income are balanced against their offset mortgage debt. People who are saving for tax bills will get the double benefit of using their savings to reduce offset account payments and reducing the amount of tax they pay on the savings. No interest equals no tax on savings.

Steady Saving With An Offset Account

An offset account works really well for steady savers. If you've been saving all your life, have a savings account with a healthy balance and intend to keep saving even after you take on your mortgage, then an offset mortgage account could suit you. Your savings will work for you by reducing your mortgage payments and your tax - and they'll still be there when you've repaid your offset account.

Repay Early With An Offset Mortgage

Apart from the flexibility, an offset account has one more important benefit for mortgage holders. Offset mortgage holders make a fixed payment each month, but the interest component of that payment varies depending on the level of their savings. That means that they overpay on the offset account each month. Combined with the other flexible features, this means that offset account holders often repay their mortgages early - yet another reason to consider this type of mortgage.

Offset Mortgage Centre

RSS Feed

© 2007 and 2008 Offset Mortgage Centre | Terms and Conditions | Privacy Statement | We don't charge a fee for admistration of an offset mortgage. The Offset Mortgage Centre is the trading name of The Mortgage Broker Ltd, (a whole of market mortgage broker), which is an appointed representative of Home of Choice Limited, which is authorised and regulated by the Financial Services Authority | Your home may be repossessed if you do not keep up repayments on your mortgage. *Source: Mortgage Stratege Supplement - April 2007. **Source: Datamonitor 16/4/07, The Offset mortgage market currently occupies a 10% share of the total market.