An offset mortgage is quite a unique type of mortgage that essentially allows you to offset your savings against the value of your mortgage.
That doesn’t mean you lose all your savings but instead means that by sacrificing the interest that you could have been earning on your savings, you can cut the amount of interest you need to pay on your mortgage.
In general, the best offset mortgage rates will still be significantly higher than the amount you would be receiving in interest from even the best savings accounts. For this reason using your savings to cut the mortgage balance you need to pay interest on can be an incredibly cost efficient use of your money.
What's more, assuming you're a tax payer, the interest you earn on your savings in a standard savings account would be taxed at the same rate you pay income tax.
By offsetting your savings against your mortgage you escape this tax as you're not actually earning interest on your savings, simply using them to reduce the amount of your mortgage your need to pay interest on.
For example, if you have £10,000 savings and a £100,000 mortgage, with an offset mortgage you would only be paying interest on £90,000.
This means that more of your repayments would go towards clearing your mortgage faster so you'll be mortgage-free sooner.
The bet offset mortgages will offer you the opportunity to link your current account, savings accounts and mortgage together if you choose to, so that all your finances are easily accessible in one place and you have even more flexibility to reduce your mortgage balance.
Offset mortgages are one of the most flexible mortgage options available as in addition to reducing the balance with savings as and when you choose (many providers limit overpayments) you're also likely to be able to draw on your mortgage if needs be.
This can give you access to a low interest credit facility but it does mean that you'll need to be disciplined in limiting your borrowing and repaying what you've drawn if you don't want to end up in a sticky situation.
There are many different providers of offset mortgage deals but to find the cheapest offset mortgage it is important to compare all the options available.
There are so many different variations on the standard offset mortgage model with the way it is structured and the exact terms and conditions, which is why comprehensive offset mortgage comparison, taking into account all aspects of the agreement is essential to finding the best offset mortgages.