The Offset Mortgage
The words offset mortgage send a lot of people into a panic.
That tends to be either because they don’t know what’s involved or because they think they do and, wrongly, believe offsets are very complicated.
In fact, they’re not at all complicated and they can be a great way to save cash.
An offset mortgage works by counting the money you have (in current or savings accounts) against the money you don’t (your mortgage) to reduce what you owe.
You earn no interest on your cash and can get it back any time you want, but and here’s the good bit you don’t pay any interest on the equivalent amount of mortgage debt.
‘so what? you might be thinking. ‘that leaves me back where I started.
But you’d be wrong.
The Benefits of Offsetting
You are likely to be paying out far more interest on your debt than you earn on your cash balances.
So by offsetting, you’re cutting your monthly interest bill.
And that leaves you with a choice:
• You can reduce your monthly repayment accordingly. mortgage lenders call this paying net and it can be an attractive option if you’re short of cash. Or
• You can pay what it would have been before your cash balances were taken into account. Lenders call this paying gross and it’s an even better option if you can afford it.
This is because paying gross means you’re actually overpaying, and this in turn means you will clear your debt more quickly, saving even more interest in the process.
To find out more about offsetting, read The two types of offset mortgage.
To see the savings you could achieve by paying gross, go to How much could I save by offsetting?