09:40 28 July 2013
There are several types of mortgages that you can take advantage of when you’re buying your house. One of your options is offset mortgage. This is highly recommended if you save money on either your savings or current account.
With this option, the interest that you earn on your savings or current account will be used to offset the interest that you pay on your mortgage. As a result, you pay less interest on your loan. This can either lower down your monthly payments or can shorten the loan term.
For example, if you have £250,000 mortgage and you have £50,000 in your savings or current account, you will only pay interest on £200,000.
Offsetting can be favourable to you as this is extremely tax efficient. Typically, you will pay income tax on any interest that you earn on your savings or current account. However, since this will be offset against your mortgage, you will not earn interest. That means you can avoid paying taxes.
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