Beyond Fixed and Tracker: Why Offset Mortgages Are Back in the Spotlight
When discussing mortgage products, the conversation usually centres on two familiar options: fixed rates and tracker rates. However, another option increasingly entering the spotlight… offset mortgages.
In recent months, we’ve seen a notable rise in clients wanting to understand how offset mortgages work and whether they could benefit from the added flexibility they offer. For the right borrower, they can be a powerful financial tool.
What Is Driving the Interest?
Offset mortgages are particularly attractive to high earners, those receiving bonuses or commission, and homeowners planning significant property improvements. They allow borrowers to reduce the interest charged on their mortgage while still maintaining access to their savings.
Rather than earning interest in a traditional savings account, your savings are “offset” against your mortgage balance. You only pay interest on the difference, helping your money work harder without locking it away.
Key Benefits of an Offset Mortgage
- Reduce the interest charged on your mortgage using your savings
- Pay off your mortgage faster or lower your monthly repayments
- Retain easy access to your savings when needed
- Potentially link savings, and in some cases even a current account to your mortgage
- Make overpayments with most lenders, further reducing interest
- Save on tax, as interest savings are not taxable
- Ideal for self-employed or contract workers managing future tax liabilities
- Family offset options can help first-time buyers onto the property ladder
Points to Consider
Offset mortgages aren’t suitable for everyone. They often come with higher interest rates than standard mortgage products, and you won’t earn interest on the savings held in an offset account. In some cases, using savings as a larger deposit to reduce your loan-to-value may provide better access to lower rates. Though this does mean your funds are tied up.
Case Study: Flexibility in Action
A recent remortgage involved clients planning extensive home improvements, requiring substantial additional borrowing. While they held most of the renovation funds in savings, this money was already earmarked for their three children’s school fees.
An offset mortgage allowed them to use these savings to reduce mortgage interest while still accessing the funds in stages as building work progressed over a 10-month period. As expected profit-share payments were received later in the year, their savings increased further, reducing interest costs even more.
Final Thoughts
Offset mortgages can offer a smart, flexible solution for borrowers with healthy savings and variable cash flow. While not suitable for everyone, they can deliver meaningful savings and control when used strategically, proving there’s more to the mortgage conversation than just fixed and tracker rates.
By Clark Shaw Associates – Mortgage & Financial Solutions
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