Elevate Financial Solutions is a team of experienced advisers assisting with all types of financial matters. Our mortgage advisers have helped many individuals, families, and businesses secure property through various mortgage types, including offset mortgages, one of the lesser-known types of mortgages that could save you money every year.
WHAT ARE OFFSET MORTGAGES?
An offset mortgage is when the buyer uses savings to reduce the amount of interest they pay on the mortgage. For example, if you borrowed £250,000 but have £50,000 of savings with the same lender, you would offset the savings against the mortgage and only be required to pay interest on £200,000 of the money borrowed.
The savings are not used to pay off the mortgage. They are only used to reduce the amount of money you pay interest on. However, during this time, the savings will not accumulate any interest.
TYPES OF OFFSET MORTGAGES
There are various types of offset mortgages available in the UK, including variable rate, fixed rate, and tracker mortgages. Variable rate offset mortgages offer an interest rate that can fluctuate over time. Fixed-rate offset mortgages have a set interest rate for a specific period, typically two to five years. Tracker offset mortgages have an interest rate linked to the Bank of England's base rate and fluctuates with it.
HOW TO QUALIFY FOR AN OFFSET MORTGAGE
To qualify for an offset mortgage, borrowers typically need a good credit score, a stable income, and substantial savings. Lenders may require a minimum savings balance or that savings cover a certain percentage of the mortgage balance. Borrowers will also need to have a deposit of at least 20% of the property's value; however, some lenders may be willing to accept a lower deposit, depending on your circumstances.
CAN YOU STILL ACCESS YOUR SAVINGS?
The terms and conditions of each offset mortgage may be different. In general, the savings used to offset the mortgage can still be accessed. However, mortgage payments may increase if you withdraw some of your savings. Always be sure you understand the conditions of any offset mortgage deal proposed to determine how the agreement will influence your ability to access your savings.
To avoid any misunderstandings and costly mistakes, it is wise to consult a professional and qualified mortgage adviser. If you need support, speak with an Elevate mortgage adviser today!
HOW TO COMPARE OFFSET MORTGAGES
Comparing offset mortgages can be challenging, as there are fewer lenders offering these types of mortgages. When comparing offset mortgages in the UK, borrowers should consider factors such as the interest rate, fees, and additional features such as flexibility in withdrawing savings. Working with an experienced mortgage adviser can help borrowers navigate the market and find the best offset mortgage for their needs.
PROS AND CONS OF OFFSET MORTGAGES
There are several advantages of an offset mortgage, including:
- You could save more on mortgage interest payments compared to the interest the savings would generate
- You can save money by not paying tax on interest above the tax-free savings interest threshold
- You could pay back your mortgage quicker
- You can still access your savings if necessary
There are some disadvantages as well:
- Your savings will not earn interest
- Fewer lenders offer these types of mortgages
OFFSET MORTGAGE FAQS
Are offset mortgages tax efficient?
Offset mortgages can include tax advantages for some people. An offset mortgage means you will not be earning any interest on your savings, and therefore you will have no tax to pay on your savings interest (above the threshold of £1,000 or £500 for higher-rate taxpayers). Thus, people with a large pot of savings that earn them more than £1,000 or £500 (as above) in interest each year will stand to benefit.
Can the mortgage be offset against a family member’s savings?
You can access an offset mortgage using another person's savings, providing that the savings are kept in a bank account with the same lender. Family members will often help children and grandchildren secure a mortgage in this way, but their savings will no longer generate any interest during the mortgage. There are many considerations to this arrangement that a mortgage adviser can assist with.
WHY USE AN ADVISER TO FIND AN OFFSET MORTGAGE?
Offset mortgages are not the most straightforward type of mortgage, and fewer lenders offer them today. Using an experienced UK mortgage adviser will help you navigate the difficulty in sourcing and securing the most advantageous offset mortgage for you.
If you're interested in offset mortgages and are looking for a solution that meets your unique needs, look no further than Elevate. Our team of expert advisers can provide you with a personalised assessment of your suitability for an offset mortgage and help you find the best options available.
CONTACT US FOR MORTGAGE ADVICE
At Elevate, we believe that every customer is unique and deserves a mortgage that fits their individual needs. We can help source a range of offset mortgage products to suit different requirements, from first-time buyers to experienced property investors.
Our team of professionals is highly trained and knowledgeable in the field of offset mortgages. Our teams are based in Bromley and Beckenham and work with clients across London and the UK. Get in touch today.
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Read less