Offset Mortgages

Designed in Australia, offset mortgages were introduced on the UK mortgage market by Virgin in 1997. Although initially they came as premium deals, now they are considered to be mainstream products. Offset mortgages are offered by many providers these days, which is not surprising as these mortgages account for about 10 per cent of the UK mortgage market.

Offset mortgage is a clever financial solution that enables you to pay off your debt ahead of time and saves you thousands of pounds in the long run.

The basic principle of this type of mortgage is as follows: your savings are set against your mortgage amount and by refusing from the interest earned on deposited funds you don't pay it on the same amount of your mortgage debt.

The system does make sense because it is highly tax efficient. Even if your savings are small, you will benefit from using them for offsetting mortgage debt. You don’t pay tax on interest that your savings would otherwise have earned since officially you have nothing in your savings account. In addition, as the interest on offset mortgages is calculated on a daily basis, every pound from your savings account reduces the amount of mortgage debt. The biggest advantage of all is that you will be able to get the money from your savings account back if there is a need.

One of the most fascinating things about offset mortgages is that you have an additional stimulus to save rather than spend – if you withdraw money from your deposit you are charged with a higher mortgage interest rate, if you save more than the interest becomes lower. It’s not difficult to grasp, but it’s an efficient method of helping you save more.

Self-employed borrowers will certainly benefit from taking out offset mortgages due to the flexibility they offer. As a matter of fact, self-employed people usually have available money to pay for some taxes or various annual. They need to have an access to their money at some point in the future but, in the intervening time they can take advantage of their savings and make the balance of the mortgage lower. Those who have a stable job with irregular commissions will also find offset mortgage a brilliant mortgage solution. Finally, it is worthy of mention that as these mortgages are normally calculated on an affordability basis rather than on a simple income multiplier, they might also turn out to be beneficial for first time buyers.

However, you shouldn’t forget that the way your offset mortgage works depends on the type of offset account and its accompanying features. Your own financial management skills also matter much. In case the maths of offset mortgages seems a bit confusing, it could be reasonable to consult a mortgage expert to find out whether an offset morftgage is a viable solution in your circumstances.



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