Offset Mortgage Calculator It’s been proven that 1 in 4 people with an offset mortgage are saving over £200 per month in interest payments

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Offset Mortgage Calculator

September 27, 2012 at 2:22 PM

It’s been proven that 1 in 4 people with an offset mortgage are saving over £200 per month in interest payments and are therefore making far more money from them they would by having their “savings” in a bank or building society getting a pathetically low interest rate.

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Even a basic tax rate payer with a typical £100,000 mortgage over 25 years, paying £200 a month extra into their offset mortgage would save nearly two years in interest payments and end the mortgage after 23 years.

They would save around £20,000 which is like getting over 5% on their savings and don’t forget it’s effectively tax free. So if you are in the higher rate tax band then that’s worth even more to you.

Use our free Offset Mortgage Calculator to see if you could save money and reduce the term of your loan. Being mortgage free two or three years earlier than expected can be one of the greatest feelings ever.

The easiest way to understand the offset mortgage is to think of it like a bank account with an overdraft that you have to pay off over 25 years. (They don’t have to be for 25 years)

Alongside your mortgage account you have a savings account. Any time you pay in extra money to the savings account you are in reality reducing the “overdraft” on your mortgage account. This means that the interest you pay each month on the mortgage should be reduced. However you still pay the same, so it just means you are in truth overpaying and therefore reducing the outstanding balance quicker.

If you are saving for a holiday you can save it into the saving account for a few months then withdraw it and pay for the holiday. But even those extra few months will have helped your mortgage.

It works great if you get a lump sum to pay in as well, say a bonus from work or an inheritance.

Using an offset mortgage reduces the total amount of interest you pay over the term of the mortgage (or remortgage) and makes your savings work much more efficiently by generating a far higher equivalent rate than a standard savings account in a bank.

Also remember your savings then become totally tax free.

It is much better than overpaying on a normal mortgage as you cannot get those overpayments back if you suddenly need them.

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Category: Mortgage Calculator

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