An offset mortgage is an arrangement that gives you the potential to pay off your mortgage early. It does this by allowing you to "offset" savings against the outstanding mortgage debt.
Let's say you have a £100,000 mortgage and savings of £10,000. With an offset mortagage you would, in effect, give up earning interest on the £10,000 but would, in return be charged mortgage interest on £90,000 not £100,000. Your monthly repayments would be based on a mortgage of £100,000 so, in effect, you will overpay each month. Over a typical 25 year mortgage this can save you a significant amount of money and is very tax efficient.
There are, essentially, two types of offset accounts on the market. The simplest method is achieved by keeping the mortgage and savings in separate accounts which are linked to allow the appropriate interest calculation.
The other type is a current account mortgage where the mortgage debt and the current account amount are combined. The effect is the same but you have to be mentally strong enough to deal with, what looks like, a significantly overdrawn account.
If you have spare cash which you intend to keep in the medium or long term, an offset mortgage can be a solid choice.
If you wish to speak to an LGBT-friendly financial adviser about offset mortgages or any other aspect of your finances, please enter your postcode under the map on your right, to find an adviser near you.
Read about the how the new rules on withdrawing money from your personal pension affect you,
Stamp duty is being abolished in Scotland and is going to be replaced by a new land transaction tax. Find out what you need to know about this change.
Journeys on the Underground and Beyond is a new collection of poetry and images from Alex Fan Moniz
© Copyright LGBT Finance Limited, 10 Melville St. Edinburgh, EH3 7NS