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Offset Mortgages

Apr 14, 2008
One of the key reasons for anyone buying a house is because it can turn out to be one of the best investments you'll ever make. Everyone's heard of the saying "invest in property", and that's exactly what you're doing when you buy your own home. You're no longer paying "dead money" to rent; everything you pay now is helping towards a secure future for you.

One of the ways that you can truly make your home an investment is to take out what's known as an offset mortgage. This is where your mortgage is tied into your savings account, and the better off your savings, the better the potential discount you'll get on your mortgage. So how does it all work?

Also known as a savings account mortgage, an offset mortgage if you have what's known as positive savings. This is then offset against whatever balance you have on your mortgage, hence the name. Although this means that you don't gain any interest on whatever savings you have, you also don't pay any interest on the corresponding amount on your mortgage. So, you have 10,000 in savings, you don't pay interest on 10,000 worth of your mortgage either. Obviously, this can make a huge difference in the amount you eventually pay.

One of the reasons that offset mortgages first came into effect was because the more traditional mortgages weren't performing very well in the ever-changing world of interest rates. Add to that the fact that stocks and shares performed just as badly, and it became obvious another approach was needed. This other approach was an offset mortgage; by reducing the interest that you pay, you could clear the mortgage in a far quicker timescale and have positive equity.

The other benefits of being able to pay the mortgage quicker are obvious - less interest means lower monthly mortgage payments as well. With the lower monthly payments on your house, you can put the money you're saving back into your actual savings account. Because you then have more savings in your account, that will be offset back onto your mortgage that in turn will let you save even more on the mortgage. It's almost a win-win situation.

Of course, although an offset mortgage certainly offers an appealing prospect for both saving money and enjoying lower interest rates, they're only really good for a certain type of people. To make it worthwhile, you need to have a decent amount of extra savings in the first place. This is obviously easier said than done, since many people are using their savings to be able to put a deposit down on their house. Once these savings have gone, it's hard to try and put money back into your account, with the day-to-day costs of running a house to contend with.

If you have enough money that you can use to go with an offset mortgage, there's no doubt that it offers an attractive alternative to a more traditional kind of mortgage. Just make sure that you have the savings to both make it worthwhile, and cover the initial cost.
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