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Paul Barron is our senior mortgage adviser who covers the Sunderland area. His qualifications include FPC 1,2,3 and CF6 along with over 10 years experience in the Financial Services industry. The following article was written by Paul to answer some of the many questions you may have about mortgages. We hope you enjoy the read along with the rest of our website and please don't hesitate to contact us for a free consultation.

Understanding Offset mortgages - by Paul Barron

There are a few variations of offset mortgages introduced by different lenders to make their product more competitive, but the basic principles of an offset mortgage remain the same.

What is an offset mortgage?
An offset mortgage essentially links your mortgage account with your savings account and some lenders also include linking your current account as an extra feature. The accounts remain separate and access to your savings is usually retained, but the money in your savings account reduces the amount of interest paid on your mortgage.

For example if you have borrowed £200,000 to buy your property and have £50,000 of savings left over from the purchase then you only pay interest on the difference, which in this case would be £150,000.

Offset mortgage are available as an interest only type mortgage or alternatively as a repayment type mortgage, which should be evaluated with your mortgage adviser.

Why choose an offset mortgage?
Offset mortgage can help save a lot of money in interest payments. This type of mortgage is usually a good option for people with savings and/or a large amount of money traveling through their accounts.

Someone who is self employed for example will typically save money for their tax bill each year, which does earn some interest if put into a savings account. But the interest in a savings account is unlikely to be as high as the interest paid on a mortgage and in addition to this a savings account is usually taxable.

So an offset account could make your savings work harder for you, while also providing a tax advantage.

What to look out for?
The very nature of an offset mortgage means linking your savings account with your mortgage account, which requires the opening of a new savings account. Some lenders and products may also link your current account, which means also changing your current account. This can present a draw back, but is greatly out weighed by the long term benefits.

Offset mortgage are not for everyone and depending on your circumstances there may be better options available, which are most easily explored with the help of a mortgage adviser who will help evaluate your best options.

This article is not intended and does not in any way provide advice. If you require professional Independent, whole of market mortgage advice you must speak to a qualified mortgage broker.