What is an Offset Mortgage? Is it Right for You?

Typically associated with repaying your mortgage early, an Offset Mortgage, allows you to set your savings against your mortgage debt. When you have an offset mortgage, any savings in your offset account don't receive interest. Instead, the amount of interest you pay for your mortgage is reduced by the equivalent amount.

With most types of mortgage, interest is paid each month for the full amount you have borrowed. With an offset mortgage you only pay interest on the amount of your mortgage minus the amount you have in your savings and current accounts.
 
An Offset Mortgage takes into consideration that the funds in your savings and current accounts can change on a regular basis. 

• tax is not paid on interest earned from saving and current accounts
• the interest earned on savings can be used to either reduce your monthly payment or repay the mortgage faster by reducing the term
• could enable you to pay off your mortgage early
• could lower your payments each month, as the amount of your debt is reduced by offsetting your savings and current accounts
• offset mortgage deals may allow homeowners to draw more funds at any time without having to remortgage
• less total interest can be paid due to the shorter mortgage term
• lump-sum overpayments may be made without penalty
• helpful for self employed as repayments can be made at different times

• borrowers can find Offset Mortgages complicated potentially resulting in difficulties keeping track of their finances
• interest rates are generally higher than standard mortgages
• to take full advantage of an Offset Mortgage you need to have positive balances in your savings and current accounts
• variable interest rates can make it difficult to budget
  
• all accounts must be with the same lender