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Offset Mortgages - Benefits of Offset Mortgages in Saving Interest Payments An offset mortgage is a mortgage where the bank combines your mortgage account with your savings account. the means that if you have savings in your current account you might automatically use these savings to pay off your mortgage, saving you potentially large sums of dollars in both interest including tax. An offset mortgage works by calculating your interest payments through the amount of Mortgage owed minus savings in bank. For example if you have a mortgage of £200,000 but had £15,000 in your savings account; you will only pay interest on £185,000. In effect you will be overpaying every month. the could enable you to pay off the mortgage earlier including save on interest payments both now including in the future. Furthermore you might make additional savings through the fact you could absolutely no longer be paying interest on your savings account. For a high tax payer the could be very significant. For example if you were a high rate payer you could be paying a particular effective tax rate of 40% on your savings. If your savings are automatically used to pay off your mortgage you could not be paying these additional tax payments A lending financial adviser, Intelligent Finance, has recently stated that in effect taking out a particular offset mortgage means that you are getting a savings rate of 11%. The logic behind their claim is that if you had a particular offset mortgage paying a standard variable rate of 6.5% then you save on the 6.5% plus you additionally save another 40% from not paying tax. In effect the means to obtain a particular equivalent deal you will need to be having a savings rate of 11%, something that is not offered by any bank at the moment. Furthermore Offset mortgages are relatively safe. The only danger could be if you consolidate all your debts in 1 place including fail to make sufficient payments into your current account. additionally if you are unable to leave sufficient funds in your current account then it could not be worthwhile. Typically the interest rates on Offset mortgages are higher to compensate for the increased flexibility you gain. However if you regularly have large sums in your current account then a particular offset mortgage could be definitely for you. When considering a particular offset mortgage though it is important to not just look at the rate of interest examine other options available such as whether you might include other debts including saving accounts into the combined mortgage package. More on Offset Mortgages
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