The
words offset mortgage send a lot of people into
a panic.
That tends to be either because they don't know what's involved
or because they think they do and, wrongly, believe offsets are
very complicated.
In fact, they're not at all complicated and they can be a great
way to save cash.
An offset mortgage works by counting the money you
have (in current or savings accounts) against the money you don't
(your mortgage) to reduce what you owe.
You earn no interest on your cash and can get it back any time
you want, but and here's the good bit you don't pay any interest
on the equivalent amount of mortgage debt.
'so what? you might be thinking. 'that leaves me back where I
started.
But you'd be wrong.
The benefits of offsetting
You are likely to be paying out far more interest on your debt
than you earn on your cash balances.
So by offsetting, you're cutting your monthly interest bill.
And that leaves you with a choice:
• You can reduce your monthly
repayment accordingly. mortgage
lenders call this paying net and
it can be an attractive option if you're short of cash. Or
• You can pay what it would have
been before your cash balances were taken into account. Lenders
call this paying gross and it's an even better
option if you can afford it.
This is because paying gross means you're actually overpaying,
and this in turn means you will clear your debt more quickly,
saving even more interest in the process.
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