Tax Savings and Mortgages

[dround]

This will mainly apply to UK Residents however, the same principle will apply to people from all over the world.

Just how many of you have a mortgage?

Are you trying to get the most from this?

Do you just sit back and keep making the payments content that some day you will pay it off?

Here I will offer advice which could save you £1000's

When you take out a mortgage it is something that will make a difference to your financial freedom. There is great commitment and knowledge that you will need to make the payment agreed for a considerable time, often 25 years plus.
At the time of taking out the mortgage you probably look around and try and get the best product for your money, this is often the only time that you would do this. WHY?

Once you have the mortgage, you should try and make sure that your money works for you and get the best return.

Let us assume that you buy a house for £100,000 and take a mortgage over 25 years with an interest rate of 5% (Please note this figures are not actual figures, they are just for explanation purposes).

Most people would sit back and make the monthly repayment for this which would be about £600. So over 25 years they repay £180,000 (600*12*25). This is £80,000 in interest.

How do you get your money to work?

At the end of the month so you have spare cash? If the answer is yes then what are you doing with this?

Saving it is probably the answer most people provide. Well, that's great but is it the right thing to do?

I would advise anyone with spare cash to either overpay thus bringing down the term of the mortgage or open a offset mortgage account.

Offset mortgages are fairly new to most UK residents and so I will try and provide a brief outline of this:

Offset Mortgages are like savings accounts, held by you mortgage provider only they do not gain interest in the account. So what is the advantage?

Let us assume that you had £100,000 mortgage with 5% interest rate. After the first year this would attract £5000 in interest which means that a repayment of £600 month (£7200 Year) would bring your balance after the first year to approx £97,800.

Now, lets assume that you had £50,000 in savings in a offset account. What happens is that the mortgage provider would offset your mortgage balance against your savings, hence £100,000 - £50,000 = £50,000.
The interest is then applied to the remaining amount, so instead of paying £5000 you would pay £2500 (5% of £50,000). Your repayment will stay the same, therefore, from the initial mortgage value your balance would now be:
100,000+2500-7200 = 95,300 and you would still have £50,000 in the offset account.
The following year you would pay interest on 95,300-50,000 = 45,300

As you can see this means that you will end up paying your mortgage faster. It also means that you will not pay tax on your savings and although you don't get interest in your savings, you benefit in what you save on your mortgage.

Why don't you use the values I have given above and see just how much money you would save by using a offset mortgage?

[Trillier]

Such a good post! I like it! thx u!

[Adamski]

Good Post But i would advise you not to take out a morgages

[BizBlogged]

The type of loan you should choose is a very individualized decision. The controversy you are experiencing over VA may well be because one of the lenders with whom you spoke may not be able to do VA loans. Not all loan officers have access to VA. Unfortunately a less than ethical loan officer may discourage you from using your VA entitlement in order to get the loan fee.

[mush1983]

tyvm nice ideas ...