An offset mortgage attempts to combine various funds against the total debt of your mortgage; therefore, you pay less on your mortgage debt. You can add savings, checking and other types of accounts into your mortgage account, so you are paying less interest. Offset mortgages came to the UK in 2000, and they keep increasing in popularity. If you are considering this type of mortgage, there are three things that you should know. You can read some more tips like these on Mortgages.co.uk, one of the leading authorities on the subject.
1. They Have Tax Advantages
If your savings account accumulates interest, you would be required to pay interest on it. However, with offset mortgages, you do not receive any interest on your savings account, so you are not required to pay the income tax. In addition, the deposit account is not taxed, so the more money that you have in your deposit account, the more you will benefit from a tax break. If you have a high income tax rate, offset mortgages can be very beneficial when tax time rolls around. If you pay less money in taxes, you will have more money to keep for yourself.
2. Make Sure You Have Enough Cash Saved
If you do not have an adequate amount of money saved, offset mortgages will not be beneficial for you. Because offset mortgages have high interest rates, you need to keep a close eye on your savings balance because you could lose any unearned interest. You will not earn any interest if you owe more on your mortgage than you have in your offset savings account. If you have at least 5 percent of your mortgage balance in savings, an offset mortgage could be beneficial for you. After your mortgage is paid, you will still have your savings as an emergency fund, so you could have more money when you retire.
3. The Savings Account is Still Liquid
You still have access to your savings account. Therefore, you can withdraw money whenever you wish and there is no penalty. You do need to keep in mind that if you take out money, your mortgage payments will increase.
If you think that an offset mortgage might be right for you, research your options and search for a lender. You could possibly obtain a lower interest rate, a lower monthly payment and you could withdraw the money at will; therefore, it could save you money. You will pay off your mortgage quicker, so you will be debt free.
This post is a guest post from Gen Tupas.
Photo attribution goes to Nikcname on Flickr – it us used under the Creative Commons License.