Save thousands and shave years off your mortgage

by John Fitzsimons on 29 June 2010  |  1 comment
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With this mortgage you can not only pay off your mortgage early, but you can also save thousands of pounds!

How would you like to shave thousands of pounds of your mortgage, and pay it off years early? Sounds like a great idea to me, and it’s very easy to do if you go for an offset mortgage.

What is an offset mortgage?

An offset mortgage basically links your mortgage and the savings you have in the bank. As a result, you only pay interest on the difference. So say you have a £150,000 mortgage, but £20,000 in savings. With an offset mortgage, you’d only pay interest on £130,000 of the mortgage.

You can also get current account versions, which link not just your savings but also your current account balance to help you pay interest on as little of the mortgage as possible.

Pay it off early, or cut your repayments!

This gives you a couple of options. Firstly, you can just enjoy the fact that you have lower monthly mortgage payments!

Alternatively, you can keep your repayments at the same level they were before going for an offset, so you’ll now be overpaying. By doing this you will pay off the mortgage years early, and will save thousands of pounds in interest payments as a result.

Either way you’ll save money.

It’s not for everyone

The big negative with an offset mortgage is that by using your savings in this way, you sacrifice earning any interest on them. Though given the frankly pathetic rates of interest on offer from most savings accounts, it probably works out better to use your savings in this way.

However, an offset does really rely on your having a healthy stack of savings to use. Offset mortgages tend to be a little more expensive than normal mortgages, due to the increased flexibility they offer, so they are only worthwhile if you can really maximise the offsetting feature. And that means having a lot of money in savings. If you only have a couple of thousand pounds, you might be better off sticking with a normal mortgage. Get advice from a broker before deciding what to do!