Topical Mortgage News and Rates
This month, Independent Mortgage Adviser, Chris, discusses Offset Mortgages and whether it is possible to save money in the long-term now whilst rates are low.
Read more, including this month’s BEST RATES, here.
This does not constitute advice and advice should be sought in all instances before acting on it.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
How does an offset mortgage work?
Last month, I discussed making overpayments to your mortgage, particularly at times like these where interest rates on savings are so low.
An alternative to making overpayments is to switch to an offset-mortgage product.
This type of mortgage links your savings and your mortgage together. Essentially, you forego any interest on your savings in exchange for paying less interest on your mortgage.
With interest rates on savings so low, many homeowners are exploring this option.
In practical terms, the amount you hold in savings is deducted from the amount you owe on your mortgage, leaving a balance to which mortgage interest is applied.
It means that homeowners can reduce the term of their loan and end up paying less mortgage interest over the entire loan term.
With an offset mortgage it is possible to still draw money from the savings, in the event of needing it. Also, for example, if bonuses or lump sums become available and are paid into the linked savings account, this all applies.
How much could you save?
Most people are disheartened then they receive yet another notification that savings rates will reduce again.
Take a look at this example to see how you could save money as part of long-term financial planning strategy.
A homeowner has a mortgage of £100,000 and savings of £30,000. By using an offset mortgage, interest will only be charged on the balance, so £70,000.
Taking an average offset variable rate of 2.81 percent, it is possible to save almost £70 per month by reducing the mortgage payments. Alternatively, pay the same amount per month but reduce the mortgage term, from 25 years to just under 22 years.
Rates start from 1.35 * for a 2-year fixed rate, however a Mortgage Review with a mortgage adviser will enable you to get an accurate idea for your own situation.
*at date of article
Some offset mortgages can be free from fees too, although many which access the lower mortgage rates may charge an arrangement fee. All options can be summarised as part of your Mortgage Review.
We will be featuring more about Offset mortgages in the new year, to help you better plan your finances, including savings and debts, for 2017.
Read more of Chris’s monthly mortgage features:
Get a mortgage review with Chris
If you would like us to undertake a review of your current mortgage deal or you are thinking of purchasing in the near future and require funding, please contact Chris for a free, no obligation appraisal.
Tel: 01403 780 770