The reality for most borrowers is the fact that their monthly mortgage payment is probably at the top end of what they can afford and they either do not have the spare cash to overpay, or they are using any spare money available for savings, to pay other debts or fund other purchases.
And with most lenders once that spare cash is paid into the mortgage, it is gone and cannot be used for anything else. This is probably why many borrowers prefer to keep their spare cash ‘liquid’ in savings accounts where they can access it for whatever they wish.
But for those who want the benefits of overpayment without technically overpaying, there is always the option of an offset mortgage. Here, instead of putting your savings into a separate account or ISA, you choose to put them in an offset pot alongside the mortgage. Instead of earning interest on the savings you offset the interest you would have earned against your mortgage, effectively overpaying.
With normal savings rates being particularly low, many borrowers with significant savings would benefit from offsetting as they would earn the equivalent of the mortgage rate on their savings. This method of overpaying also allows the borrower to keep their savings ‘liquid’ as they can always access the money from the offset pot at any time.
It is also worth bearing in mind that any interest you earn on your savings is taxable at your highest rate of income tax, which might be 20%, 40% or, as of April 50% for the highest earners. If you use your savings to overpay your mortgage instead, not only are you effectively earning interest on them at the mortgage rate, but because they no longer technically exist as ‘savings’ you do not pay any tax. Enable can help your look at your mortgage options again.
No comments:
Post a Comment