With some offset mortgages, money saved could be withdrawn at any time and with no penalty – although, of course, the offset benefit will shrink.
Benefit from greater tax efficiencies: Interest saved through funds stored in offset savings does not count towards the personal savings allowance.
Reduce the mortgage term or help to lessen the impact of rising rates on monthly mortgage repayments: with a repayment offset mortgage, borrowers can choose to decrease either their mortgage term or the amount they pay each month.
With an interest-only mortgage, monthly payments or the outstanding balance can be reduced.
Opting for a repayment offset mortgage also means the offset benefit reduces the outstanding balance, which lowers the amount of mortgage interest paid, therefore shortening the mortgage term.
On the other hand, if a borrower wants to keep the same term length over the lifetime of the mortgage, they can reduce their payment amount by opting to automatically put their offset benefit towards their subsequent monthly payment, helping with monthly outgoings.
With an interest-only offset mortgage, monthly mortgage payments can be lowered through the same method as with a repayment mortgage, or the offset benefit is credited to the outstanding mortgage balance owed, meaning a lower pay off amount at the end of the mortgage term.
As savings interest rates go up, the amount people can save before being taxed goes down.
For example, data from CACI’s mortgage market database shows that as of June 2023, with the average one-year fixed rate at 4.21 per cent, a basic rate taxpayer can save £23,753 before paying tax.
In December 2022, when the average one-year fixed rate stood at 3.51 per cent, a basic rate taxpayer could store away £28,490 without incurring a tax bill.
And while Isas also offer tax-free savings, they are limited to deposits of £20,000 per tax year.
Dispelling some common misconceptions
A common misgiving many people have is that offset mortgages are complicated products designed for complicated financial circumstances, but this could not be further from the truth.
Making things even more simple is the fact that with some lenders an offset mortgage is linked to a single offset savings account, which works much like a regular savings account does – deposits and withdrawals are made as normal.
Some people also believe that an offset mortgage requires a minimum savings deposit, but many lenders now have no such barrier to entry nor any limits on how many times savings can be withdrawn.
