Who Can Benefit from an Offset Mortgage?
Over the last decade, the offset mortgage market has experienced exponential growth. Low savings rates combined with increased consumer awareness have pushed offset products into the mainstream, after years of relative obscurity. However, many potential borrowers are still left with questions: What are the benefits of offset mortgages? Who can benefit from this type of mortgage? Let’s take a look at the advantages of offset products, and see which groups of people could derive the most financial benefit from them.
Interest Savings and Tax Benefits
An offset mortgage is a unique product that allows borrowers to enjoy both mortgage interest savings and tax advantages. It’s a type of mortgage that involves connecting a conventional mortgage with one or more savings accounts. Whatever balance is in the savings accounts earns no interest, but instead is used to offset the mortgage. When each mortgage payment is made, the interest is determined by the principal remaining in the mortgage account, minus the amount of the offset. Since most interest rates are higher than current savings rates, the reduction in mortgage interest usually outweighs any lost interest you would have earned on your savings.
Offset products also offer tax benefits to borrowers. With a traditional savings account, you’d have to pay tax on any interest you earn. Offset mortgages, however, work a bit differently. Since you only pay interest on the difference between your mortgage amount and your savings offset, the savings that you put in is essentially earning a return set at the mortgage rate. There’s no tax to pay on this benefit, so offset mortgages effectively give borrowers a tax-free return on their cash. This can have a real impact for higher-rate taxpayers.
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