It’s news to no one that savers have had a pretty rubbish time of late. With interest rates at a record low of 0.5% savers are getting very little return on their money. It’s for this reason that many people are looking for different homes for their money – often quite literally, with property investment proving attractive.
However, it is still possible to make your savings work hard for you – by offsetting them against your mortgage.
An offset mortgage is a great way of making the most of your savings when they’re not making much interest. So how does it work? Quite simply, the amount of savings you have is taken off your mortgage debt before interest is calculated, thus reducing the amount of interest you pay. So, for example, if you owe £200,000 on your mortgage but your have £20,000 in savings, rather than paying interest on £200,000 you’ll pay it on £180,000 (£200,000 less your £20,000 savings).
If you’re paying less interest on your mortgage you’re able to pay it off sooner. And, if you need to access your savings, you can do.
There are a couple of downsides however. Firstly, it’s important to remember that by offsetting your savings against your mortgage you give up the chance to earn any interest on them. While that might not be a problem right now given the low interest rates on offer, which could change in the future.
Secondly, offset mortgages tend to have higher rates than other mortgages so make sure you use an experienced mortgage broker, like We Know Mortgages Ltd, based in Manchester city centre, to find out if an offset is the most appropriate option for you.