Offset mortgages
With an offset mortgage, your main current account or savings account (or both) are linked to your mortgage and are usually, but not always, held with the mortgage lender. Each month or day, the amount you owe on your mortgage is reduced by the amount in these accounts before working out the interest due on the loan.
So as your current account and savings balances go up, you pay less on your mortgage. As they go down, you pay more. You must be aware that you will not receive any interest on money held in the current or / and the savings account whilst offset occurs
If you're disciplined about your finances then an offset mortgage may help you save money in the long run and reduce your mortgage term.
Essentially, you have a savings account linked to your mortgage account, but instead of earning interest on your savings, your money is used to "reduce" the balance of your mortgage.
Offset mortgages are clearly a good option for anyone with unallocated savings. As a rule of thumb, to make a real difference you need around £10k in savings for every £100k mortgage debt. However, smaller amounts can make a real difference, too.
Offset mortgages can also be particularly good for people who are self-employed, or receive large annual bonuses. By putting money that's been set aside for tax purposes into an offset savings account, self-employed homeowners can benefit from their cash working against their mortgage debt. And paying in annual bonuses can make a substantial difference.
Speak to your financial adviser to see how much you can save.
Current Account Mortgages Is an offset or current account mortgage right for you? Possibly, yes, - if you are a higher rate taxpayer, have substantial savings to offset and like the idea of built-in flexibility to make overpayments and underpayments. Possibly not, if after paying your deposit you don't have much left in savings and if other mortgages have a lower interest rate or other features that are more important to you.
A current account mortgage is similar to an offset mortgage in that it offsets the balance of your savings against your mortgage. However, in this case, rather than your mortgage and current account being separate pots of money, they are usually combined into one account. This means that the account acts like one big overdraft.