An Intelligent Finance (IF) offset mortgage is a type of mortgage where your savings are linked to your mortgage account. Instead of earning interest on your savings, the amount of savings you hold “offsets” the amount of mortgage debt on which you pay interest. This can significantly reduce the amount of interest you pay and the overall term of your mortgage.
Here’s how it works: let’s say you have a mortgage of £200,000 and savings of £50,000. With an offset mortgage, you’ll only pay interest on £150,000 (the difference between the mortgage balance and your savings). IF offered a particularly popular version of these mortgages, though they are no longer available to new customers.
Key benefits of an IF-style offset mortgage rate included:
- Reduced interest payments: The primary benefit is paying interest on a smaller amount, saving you money over the life of the mortgage.
- Shorter mortgage term: By reducing the amount of interest accruing, you could potentially pay off your mortgage years earlier.
- Tax efficiency: As you’re not earning interest on your savings, you won’t pay tax on it. This can be particularly advantageous for higher-rate taxpayers.
- Flexibility: You can typically access your savings if needed, although withdrawing savings will increase the portion of your mortgage that accrues interest.
- Overpayment alternative: Offsetting can be seen as a flexible alternative to overpaying on your mortgage. You retain access to your funds while still enjoying the benefits of reduced interest.
Considerations:
- Interest rates: Offset mortgages may sometimes have slightly higher interest rates compared to standard mortgages to compensate for the potential reduction in lender income. It’s crucial to compare rates carefully.
- Savings fluctuations: The benefits of an offset mortgage are directly linked to the amount of savings you hold. If your savings decrease, the amount of interest you pay will increase.
- Suitability: Offset mortgages are generally most suitable for individuals with a consistent level of savings who want to retain access to their funds while reducing their mortgage interest. They may not be the best option for those with little or no savings.
Important Note: Intelligent Finance no longer offers new mortgages. Existing IF offset mortgage holders can continue to benefit from their offset arrangement. However, prospective homebuyers should research other lenders that currently offer offset mortgages and compare their terms and conditions carefully.
When considering an offset mortgage from any lender, seek independent financial advice to determine if it aligns with your financial circumstances and goals. Understanding the specific terms and conditions of the mortgage is crucial before making a decision.