Tuesday, February 13, 2007

Offset Buy to Let Mortgages

What are they?
They are Buy to Let Mortgages, where you rent the house to a tenant to pay the mortgage.

What about offsetting?
You trade (offset) your savings against the amount remaining on your mortgage (the mortgage balance)
eg £20 000 of savings offestagainst a mortgage balance of £100 000
You only pay interest on £80 000.

Usually lending rates are higher than savings rates, so you save money This works especially well for higher rate tax payers, who will pay more 40% tax on savings.

Early repayment charges are uncommon on offset mortgages…useful if better products become available & you can make unlimited overpayments.

For sole traders & partnerships the Yorkshire Bank also allows to offset business balances against residential mortgages.

The one disadvantage of offset mortgages has been higher rates than traditional repayment mortgages, however as offset mortgages have become more popular, the differential has grown smaller.

No comments: