Tax And Offset Mortgages - Giving You A Break
One report into offset found that one in three homeowners would be better off with offset* - and one of those reasons is the tax benefits that come with using your money with an offset instead of a savings account. A savings account is all well and good - there are many lenders out there offering great rates of interest on their ISAs. But the money isn't working for you - it's working for them. You see a small percentage of interest, while some of the lenders make huge amounts of profits with its investors' monies. But with savings on tax and offset mortgages' properties you are the one who cashes in, not the lender. The big secret of tax and offset mortgages is that with offset you are in control of everything.
So how does tax and offset mortgages work? Well with a regular savings account you earn from interest. But that earning is usually paid taxed at the Basic Rate, and depending on what sort of taxpayer you are, you may have to pay an additional 18%. But with offset mortgages, you do not have interest accrued, instead you make your money in savings. So there are no tax payments, only tax savings. For example: £10,000 in a 5% savings account would make you £500 at the end of the year, minus up to £200 tax is a measly profit of only £300. But with an offset mortgage, £10,000 offset on a 6% mortgage means you pay no tax on the money, and therefore save £600 a year. So tax and offset mortgages work - saving money instead of giving it to the taxman.
And these savings with tax and offset mortgages can go on and on - according to a leading offset lender, tax and offset mortgages put you in control, and they can also offer some massive savings. On average, a regular savings account at 5% base rate would make a saver just over 300% returns over 10 years. But with an offset, in just six years, offset's real rate would have earned a higher rate taxpayer more than 800% more than the average savings rate. A lower rate taxpayer would have made more than 500% on the same basis. Tax and offset mortgages just make sense.
Tax and offset mortgages can be complicated and they can be difficult to get your head round - you don't actually make money, you just save. But that saved cash can be reinvested into the offset and save you even more - and savings into a property makes future earnings for you. So tax and offset mortgages save and make you more money.
* All statistics from Intelligent Finance, October 2006
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