Advantages and Disadvantages of Offset Remortgages
Offset remortgage products are very popular, especially among those home owners who have managed to save a lot of money and want to avoid paying taxes on the interest they earn on those savings. An offset remortgage is associated with borrowers’ savings accounts and current accounts, owing to which the amount owed to the mortgage lenders can be offset with one’s savings and a lot can be saved in terms of monthly repayments. Offset remortgages also give borrowers the opportunity to reduce their loan terms.
Advantages and Disadvantages of Offset Remortgages
The above-mentioned are not the only benefits of offset remortgages. These loan products often include alluring benefits such as options to overpay whenever possible, take payment holidays or underpay when the borrowers’ financial conditions are not good, and flexible rates, to mention just a few.
If you have a lot of money in your savings account and want to avoid paying taxes, getting an offset remortgage is the best solution because any interest earned on your savings will not be taxed. Since the rate of interest paid on savings is not very exciting, you can use your savings to get rid of your offset remortgage faster, instead of earning interest on it and getting taxed for it.
On the downside, offset remortgage products are associated with fees such as discharge fees and deeds although the fees payable depends on the mortgage lenders and the product offered. Offset mortgages can also be more expensive than other types of remortgage products such as fixed rate remortgages, interest only remortgages, and others. You already need to have a large savings account, at least 40 percent of your existing mortgage value, to get an offset remortgage.
While you have greater control over your savings and how you spend it, you will have to be highly disciplined about the way you spend your money. If you do not have enough in your savings account, you will have to spend more to pay off your offset remortgage.
How Offset Remortgages Work
In case of an offset remortgage, borrowers’ savings are associated with the offset remortgage account. Any savings credited to the account will be used to reduce the principal of the mortgage loan. For instance, if you have taken a remortgage of £200,000 and have £50,000 in your savings account, your savings will be absorbed into your loan and you will have to pay interest on only £150,000. This means that if you manage to save more, you will end up paying your offset remortgage faster.
While you are using your savings to pay off your offset remortgage, you are free to use your savings as you like. In other words, your savings account is not locked into your offset remortgage deal, and you can withdraw it whenever you like.
Considering the high rates of interest on offset remortgages and the fact that offset remortgages require a plump savings account, they are not for everybody. Those on a tight budget will find that fixed rate or adjustable rate remortgages are more affordable.