June 22nd, 2016
Many contractors have benefitted in the past by choosing an offset mortgage product. This type of product is an ideal option for someone with substantial savings.
An offset mortgage allows borrowers to link their mortgage with a savings account, where funds can be withdrawn or deposited at any time. The lender takes in to account the amount held in savings and deducts this by the mortgage debt before calculating the interest that needs to be paid.
So if a contractor borrows £330,000 and has savings of £50,000, they will only pay interest on £280,000. The products are particularly attractive to higher and additional rate tax payers as the saving made on the mortgage is not tax deductible.
The above contractor could save themselves over £62,000 in interest, over a 25-year term, when comparing this to a traditional mortgage product*. This is assuming that savings are used to reduce the mortgage debt and if so, the debt could be cleared 5 years earlier than planned.* Based on a comparison between a Scottish Widows 2 year fixed rate offset mortgage at 1.40% with a £1,499 arrangement fee and a Halifax 2 year fixed rate non offset mortgage at 1.34% with a £999 arrangement fee.
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