Offset Mortgage – The Facts

To be able to find the very best mortgage you need knowledge. If you stumble into mortgages with your eyes closed, chances are you will end up with a bum deal that doesn't suit your needs - so knowing what is out there will allow you to make better choices. An offset mortgage is one option, but to know if it is the best option you need to know the facts - what does it do? Will it work with your circumstances? Will it be the mortgage you have been searching for or will it leave you out of pocket? Read on to find out if an offset mortgage will be right for you.

An offset mortgage is a loan which is offset against a lump sum of money - the more you offset against the whole home loan, the less you have to repay month by month. For example, if you take out a £120,000 mortgage, but you have £30,000 saved, your offset mortgage repayments will only mirror those of a £90,000 mortgage. And that's a big saving each month - an offset mortgage is one of the only ways in which your savings will truly save you even more money.

The offset mortgage lender uses the lump sum as indirect mortgage down payment, so the more you offset, the lower the payments. Of course, if you decide to spend more of the offset sum, the repayment will be higher at the end of the month. But it pays to save with an offset mortgage - doubly, with all the tax breaks. Simply, any interest accrued on your savings is usually taxed. But with an offset mortgage, there is no interest, so no tax and just savings.

And an offset mortgage can give you all the flexibility you need from your mortgage. Offset can either be linked to several accounts, moving up and down with your balances, or it can come in the form of a single current account - in affect your mortgage is a huge overdraft. This is perfect for those looking to consolidate debt and get all their financial responsibilities under one rate.

So the first thing to ask yourself is do you have the savings to be able to make an offset mortgage work? An offset mortgage is a deal for savers, or for people who can keep their monthly outgoings down - an offset mortgage can be linked to a current account, so wages can help keep repayments low. If you have struggled to save in the past, an offset mortgage may not be the right choice.

Of course, an offset mortgage could be the perfect vehicle to help you start saving - the best incentive to save is to know that every penny in the bank is another step towards a cheaper mortgage bill. So if you want to save, and want your money to work as hard as you do, talk to an adviser about taking out an offset mortgage.