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Offset mortgages allow homeowners to clear their debt quicker by making regular overpayments.

Through an offset mortgage, homeowners link all their financial accounts to their mortgage, including current accounts, savings accounts and any additional loans.

They can then offset the money in their current and savings accounts against the outstanding mortgage, reducing the amount of debt owed, which in turn reduces the amount of interest payable.

Therefore a homeowner with a £100,000 mortgage and £10,000 of savings would be able to offset the two and just pay interest on £90,000 of debt. Money held in the current account would also be used to reduce the debt and a further bonus is that the £10,000 savings becomes tax-free.

If the homeowner's circumstances change, they are still able to access the £10,000 savings.

Who Should Get An Offset Mortgage?

Offset mortgages will not be suitable for everyone and the flexibility provided will mean that the interest rate is likely to be higher than a standard mortgage. It is also a product more suited to those with a stronger financial discipline.

Although the majority of offset mortgages are taken out by people with higher incomes, who are more likely to be able to afford to make overpayments, there is no reason why people with smaller mortgages should not be able to benefit by repaying their loans early and having the additional benefit of tax-free savings.

What Next?

Before you decide to take out an offset mortgage, it is a good idea to consult with your financial advisor, who will be able to help you decide if it will suit your circumstances.

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