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Use your savings to reduce the amount of interest you pay with an offset mortgage.
An offset mortgage is a type of mortgage that is linked to one of your savings accounts.
The money in your savings isn’t used to pay off your mortgage. Instead, it’s used to lower the total interest you’ll be charged on your repayments each month.
Even though it could make your mortgage repayments cheaper, you won’t earn any interest on those savings your mortgage is ‘offset’ against.
Offset mortgages work by ‘offsetting’ the amount of money you need to repay on your mortgage against what you have in a savings account.
Lenders ‘take away’ the amount in your savings account from how much you owe on your mortgage. You’ll only pay interest on what’s left. This means you will pay less interest than if you had a repayment mortgage.
Offset mortgages could mean you make lower monthly repayments. This is because you will pay less interest on what you borrow.
If you want to pay off your mortgage quicker, a shorter term will mean bigger repayments. With lower payments, you’ll be on a mortgage term for longer.
You might still be able to add and take money out of the savings account you use with an offset mortgage.
The more money you take out of your savings account, the less you’ll save on your mortgage interest. On the other hand, if you keep topping up your savings, you’ll reduce your interest rate.
Many lenders will let you overpay a certain amount each year on your offset mortgage.
You can usually overpay by up to 10% a year. Make sure you check any limits on overpayments. Paying more than you are allowed could mean you have to pay an early repayment charge.
If you’re a diligent saver, you may be thinking about an offset mortgage. But they might not always work out cheaper overall if you have lots of money saved up. This will depend on your situation and how you’d like to pay off your mortgage.