What is an Offset Mortgage in Middlesbrough?

When you take on any mortgage type, you will be paying capital (the balance) and the interest (at a percentage of the remaining balance) at the same time. If you want to reduce the amount of interest you pay per month, it may be beneficial to take out an offset mortgage in Middlesbrough.

How does an offset mortgage in Middlesbrough work?

When applicants like first time buyers in Middlesbrough look to get an offset mortgage in Middlesbrough, their mortgage lender will open them up a savings account, to run alongside their mortgage term length. You will not be paying back the capital balance of your mortgage from this savings account; instead, you will lower your interest.

To use an example of this, you had a £100,000 mortgage to pay off and you chose to put £20,000 into your savings account, there will still be a £100,000 mortgage for you to pay per month. However, you would only be paying interest on £80,000, with the remaining amount free from interest.

The amount of interest you usually pay is calculated as a percentage of your mortgage balance, which increases the total amount you pay. With this in mind, the more interest you offset into your savings account, the less you’ll have to pay overall, which can save you money.

How does the savings account from an offset mortgage in Middlesbrough work? 

As we said, the money you will put into your savings account must be offset by your interest, which will reduce your overall mortgage payments. Unlike for a standard savings account, you do not pay tax on it. This is certainly more beneficial for taxpayers with higher rates.

One possible drawback of this type of mortgage is that your savings will not grow like a standard savings account. No interest will be earned on an offset mortgage savings account.

Even with this, a potential mortgage applicant may still not be deterred, especially since you could save so much by offsetting interest. Another good side is that the account has a lot of flexibility.

Looking back at the previous example of a £100,000 mortgage and savings of £20,000, if you then needed to use some of your savings, in perhaps an emergency situation, you can do this. It’s important to remember though, you would once again be paying interest on a higher amount.

So whilst perhaps you are only paying interest on £80,000 at that time, if you were to draw out £10,000, you would then be paying interest on £90,000 again until you had enough funds to deposit back into your offset mortgage savings account. 

What happens to my monthly mortgage repayments in Middlesbrough? 

You will always be responsible for your monthly mortgage payments, but you will pay much less on your interest overall.

If you ever got to a point where you could offset the entire balance closer to the end of your term, perhaps through some handy work bonuses or inheritance, you would still be responsible for your capital repayments, you would just have much less interest.

This means that while offsetting your entire mortgage balance would effectively reduce your interest rate to nothing, the capital will still be there (your mortgage will consist of capital and interest) and must be repaid.

Do I have the option to overpay my offset mortgage in Middlesbrough? 

Depending on who your mortgage lender is, you can make overpayments of your mortgage by a certain additional amount per year. Typically, it is up to 10% per year, although it is always worth asking your mortgage lender first.

Overpaying by too much per year can lead to you potentially owing an early repayment charge.

While you may have restrictions on how much you can overpay your mortgage balance, you have the freedom to put as much as you want into your savings whenever you want to.

Is an offset mortgage in Middlesbrough right for me?

There are many factors to think about when taking out an offset mortgage in Middlesbrough, as to whether it is the most suitable option for you. This might be a difficult choice to make, especially to first time buyer in Middlesbrough and those who are looking for expert remortgage advice in Middlesbrough.

It is all about the advantages and disadvantages. As we said, higher-rate taxpayers will benefit from it because their savings are tax-free. You can also use the flexibility to withdraw and deposit funds as you wish.

Another positive, especially if you apply for a first time buyer mortgage in Middlesbrough, is that someone else may have the option to offset against your mortgage, meaning a family member or friend could help bring your payments down, though this depends on the mortgage lender.

At the end of the day, you at least need to be making significantly large payments into this savings account to see the benefits and to outweigh the costs that are involved with offset mortgages. 

To speak to a mortgage advisor in Middlesbrough, book a free mortgage appointment today and we’ll look to see if an offset mortgage, or discuss the many different types of mortgages in Middlesbrough, to find you something more suitable. 

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