Money tip #15 – Save income tax on your mortgage interest payments
If you are a mortgage borrower with savings you may want to consider taking out an offset mortgage.
In simple terms, under an Offset mortgage your savings can be offset (hence the name) against what you owe on your mortgage and then interest is charged on the balance.
What this means is that you can:
- Pay less interest on your mortgage
- Save income tax on your mortgage interest payments (as savings interest is taxed but the offset happens gross)
- Pay off your mortgage quicker if you are on repayment deal.
In other words, the effect is same as if your were to overpay a loan but with the added benefit that you don’t actually give any money away, so still have access to it.
Given the often huge disparity between savings interest rates and mortgage rates, particularly while Bank of England interest rates are so low, your savings are effectively earning a rate of interest equal to that which is applied to your mortgage i.e. much higher than is normally available to savers!
Obviously whether an offset mortgage is right for you depends on your individual circumstances, as well as the deal you can secure, but there is a potential to save money/tax and pay off your mortgage sooner.
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