All-in-one Mortgages

In effect, an offset mortgage puts you in a position where you are devoting the bulk of your savings to reducing your mortgage. This can save thousands of pounds off the cost of your mortgage and could mean you pay off the loan early. You still have the flexibility to divert your savings instead to other uses, in which case you give up some of the mortgage cost savings.

Of course, you don’t need an offset mortgage to pay off your loan early. You could have an ordinary mortgage and a completely separate savings account. From time to time, you could use your savings to pay off a chunk of your mortgage. That too would save you thousands of pounds in mortgage costs and could mean paying off the loan early. But, unlike the all-in-one mortgage, your savings would not earn the mortgage rate of interest, you would have to pay tax on the savings interest and, having paid off part of the mortgage, it would be more difficult to change your mind and use your savings for some other purpose after all (because you would need to take out a new mortgage to ‘get back’ your savings).

The drawback of all-in-one mortgages is that the mortgage rate of interest is often higher than deals you could get elsewhere and, in particular, there are often no special deals, such as a low discounted rate for the first few years. If you have only a low balance in your current account and little in savings, the benefits you get from combining the accounts may be too small to outweigh the extra cost of the mortgage. And combining your finances in this way could be confusing, especially in the case of a CAM where you have just a single account for both your mortgage and current account. You need to be the sort of person who can efficiently keep track of their money.

If you are good with your finances, generally have a high current account balance, have reasonably high savings and you are a taxpayer (particularly a higher rate taxpayer), an all-in-one mortgage could be a good choice. But check the mortgage is reasonably priced and has all the features you want.