Overall the popularity that surrounds taking out an offset mortgages has dipped since the rise of that mortgage type during the 1990s, though thankfully for customers who want this, they can still be a great option for home buyers.
They can especially be useful if you believe that you are due to receive a lump sum at any point in the near future, perhaps from say an inheritance.
When your offset mortgage begins, you will have a savings account opened in your name by the mortgage lender, with the aim of that being to run alongside your mortgage and help to pay it off. Rather than garnering any interest, it will instead offset your savings against the balance of your mortgage.
To provide an example of how this might work, let’s say that you had a mortgage that is worth £100,000 and you have saved up £15,000 with your savings account, then you will only pay interest on the £85,000 that is remaining on your balance.
Offset mortgages are considered to be much more flexible options for home buyers. The reason for this, is that until your mortgage has been completely offset, you are able to take out and put in as much into your savings as you see fit.
This provides you with an emergency backup, as you are able to take out funds at any point if you need to do so, though it’s important to note that withdrawing money will increase your balance, thus increasing your overall cost.
One of the positives around offset mortgages, is that it saves interest, as opposed to adding it on, so you won’t be paying any tax on any amount of funds that you put into your savings. Higher rate taxpayers are a big fan of these types of mortgages!
If you are due a lump sum at any point, such as an inheritance through perhaps a family member’s equity release, an offset mortgage can be a really great option. This is because it allows you to store your funds until you want to do something with it, free from interest.
You may also want to put any annual or quarterly bonuses you receive from your job into your savings, if you have no dependance on them. The more that is sitting in your savings, the better off you will be throughout your mortgage.
Thanks to the flexibility of this mortgage, you can freely dip into savings if you need extra funding, whilst leaving some still in to offset against your mortgage. It’s crucial to remember that you will need a substantial amount of money in there, to make an offset mortgage worth it.
An offset mortgage is a great choice for first-time buyers in Lincoln who are planning on overpaying their mortgage throughout their term. Looking ahead to the future, once you have finished your current mortgage period, overpaying could potentially allow for reduce interest rates or monthly payments.
With other mortgages that you could take out, any money that you put towards your mortgage cannot be taken back out once it has been paid. At this point, you may have limited mortgage options. This is certainly not great if you change your mind once you have overpaid or need emergency funds.
Of course an offset mortgage counters this, due to the freedom you have to put in and take out funds. So if you’re looking to overpay on your mortgage, this could also come in really handy.
Before diving into a mortgage, it is important to consider all of the options you have available. Speaking to a qualified mortgage advisor in Lincoln is a great way to make sure you are on the right path when it comes to your mortgage.
We often find that any customers who opt for an offset mortgage, are more likely to continue with said mortgage, as opposed to remortgaging like other homeowners at the end of their fixed period.
As an open & honest mortgage broker in Lincoln, you will be assigned a dedicated mortgage advisor who will show you the impact of offset mortgages and how it could possibly save you money over the duration of your mortgage term.
For further questions regarding offset mortgages, or if you would like to remortgage in Lincoln, feel free to book online today and take advantage of the free mortgage appointment we offer to all customers, no matter their situation.