Improve Your Cashflow With An Offset Mortgage

Is an offset mortgage for you? It's certainly worth considering if you're self-employed.

A couple of weeks ago I was talking to a barrister about the difficulties he faced being self-employed. As with most self-employed people his main problem was cashflow. One month he'd be flush, the next month he'd be worrying about how to pay for his children's school fees.He resolved it very sensibly by switching to an offset mortgage. Actually, he called it an offset mortgage but from the sounds of it was actually a current account mortgage (CAM) but the differences between them are comparatively minor except for one important point.They work like this: if you compare the interest rate you're paying on your mortgage to the rate you're getting for your savings, you'll probably find you're paying more than you're getting. And what's more, you're likely to be paying tax on the interest you're getting too.The benefit of a CAM or offset mortgage is that the savings and borrowings are merged so that the former partially cancels out the latter. So if you combine your £100,000 mortgage and your £10,000 in savings, you'll only need to pay interest on £90,000.The technical difference between a CAM and an offset mortgage is generally that with a CAM, your mortgage, savings and any money you might have in your ordinary bank account all go into the same pot. Effectively you have a current account with a massive overdraft facility which fluctuates wildly in good and bad months.A true offset mortgage doesn't combine your borrowings and savings in one pot - they're each held separately. Side by side, if you like. This important difference means that with an offset mortgage any savings you have in your Cash ISA can be offset against the mortgage without having to close down your ISA. At a later date when you've finally paid off your mortgage, you'll still have your savings protected from the taxman whereas with a CAM, you won't.Interest rates on CAMs and offset mortgages tend to be slightly higher than other types although the rate difference isn't as wide as it used to be. The key benefit is flexibility which as any self-employed person will know, is the flexibility they afford.Find out more about Offset Mortgages and compare products.