Off-set mortgages – a better way of saving?
The outlook for savers in 2013 is pretty bleak with interest rates at an all-time low. This is partly due to the Funding for Lending Scheme through which banks have been provided with cheap funds to encourage lending to house buyers and businesses. Consequently, they have had less need to attract savers’ money.
It’s perhaps not surprising then that off-set mortgages are increasingly seen as a way of preserving savings whilst cutting the cost of borrowing. Now widely available in the marketplace, as its name suggests, the off-set mortgage enables those with savings to off-set them against their mortgage, thus reducing interest paid whilst still preserving their capital. In some cases, this type of mortgage could even enable borrowers to pay off their mortgage several years early. An additional benefit is that no tax is payable on the savings used to off-set the mortgage as they do not earn interest.
So what’s the catch? Off-set mortgages typically charge higher rates that standard mortgages and/or attract a significant fee. Nevertheless, if you’re a higher rate tax payer, an off-set mortgage is worth further investigation.