Do you want to pay your mortgage off more quickly? Do you want to pay less interest on your borrowing? And do you want a better and more flexible way to manage your money? If you do, an offset mortgage could be the answer. And offset mortgages through building societies are celebrating their 10th birthday in the UK in 2012. They have helped thousands of borrowers save money and pay off their mortgage faster since they were introduced by the Yorkshire Building Society in 2002. But how do they work? And what are their main benefits?
The main idea of an offset mortgage is that your mortgage account is linked to one or more savings accounts. The money in your savings accounts is used to cancel out part or all of your mortgage debt. For example, if you had an offset mortgage of £150,000 and £10,000 in your savings account, you'd only pay interest on £140,000.
With interest only paid on the balance between your savings and mortgage debt, you achieve the same effect as overpaying on your mortgage. However, you can get the money back if you need it. You will avoid paying tax on interest that your deposits would otherwise have earned. In addition, you'll reduce the cost of your borrowing as offset mortgage lenders calculate interest on a daily basis.
Offset mortgages offer a range of benefits to borrowers. Here are the top three:
Jemma Smith from the Yorkshire Building Society, who pioneered this type of lending in 2002, says: "As the first building society to offer offset to customers, we truly believe offset provides a genuine opportunity for consumers to save thousands of pounds on their mortgage. Now really is the time for offset. Due to low savings rates you can get the best overall return on your mortgage and savings accounts, whilst maintaining full flexibility."