As
the name suggests, an offset
mortgage works by using the money you have to reduce the amount
you owe.
You don't earn any interest
and can get your cash back whenever you want it, but as long as
you leave it in the offset account, you don't pay any interest
on an equal amount of your mortgage balance.
And, because debit interest tends to be quite a bit
more than credit interest, this means you save.
But there's more than one way of doing this.
The current account mortgage
This is the most extreme form of offset, with your mortgage account
taking the place of all your other accounts.
Your salary gets paid in every month, reducing what you owe, and
you use the account just as you would traditional current and
savings accounts paying bills, putting money in and taking it
out as you need to.
The more you pay in, the less you owe and the less the monthly
interest bill.
This is the non-current account version, which replaces only your
savings accounts.
You keep your current account running as normal, but you move
all your savings balances and any cash you have spare at the end
of each month into an offset account provided by your lender.
This is linked to your mortgage but not actually part of it.
So, although you will have separate savings and mortgage accounts,
one showing a positive balance and the other negative, the savings
are offset against the debt as above, reducing your monthly interest.
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