Mortgage installments usually consist of two parts: principal and interest. Through offset mortgages, holders of the mortgage can maintain a special saving account known as an “offset account”, where they can keep the needed funds to pay their monthly mortgage.

Unlike traditional mortgages, in an offset mortgage the bank will take the fund deposited in the offset account regularly to pay down the principal. Due to this, the borrower’s monthly mortgage payments will be significantly lowered compared to what they would have been in a traditional mortgage. That is why; an offset mortgage is also known as an “earlier repayment mortgage”.

The benefits of an offset mortgage are mainly about money, time and taxation. Firstly, with an offset mortgage, you can save interest fees. You can reduce total interest costs by investing in the offset account and using those funds to lower your monthly mortgage payment. Secondly, you can save time by paying off your mortgage earlier. Thirdly, you can save on tax. All the interest incurred from a traditional mortgage account is subject to taxation, but when you use an offset mortgage, you can save on tax payments.

The key point about an offset mortgages is that borrowers must have credit-worthy repayment capabilities. If a borrower fails to pay their offset mortgage installments on time, their credit score and overall financial situation can be seriously affected, resulting in heavy penalty fees.

In conclusion, an offset mortgage is an interesting financing option for those who are looking to pay off their mortgage faster and save some money on interest and taxes. While saving interest is undoubtedly appealing, it is best to keep in mind that offset mortgages come with certain risks and should be considered carefully.