7 March 2006
Current account mortgages can be a good fit for those paying a higher rate of tax, a new study by Defaqto has revealed.
The account-indexed mortgages, which link the status of your bank account to your mortgage repayments, effectively reduce the tax contribution of an individual.
Money is taken from the nominated account by calculating how much you owe plus the interest payment, with the process bypassing the taxation of interest earned.
Financial research company Defaqto says that this means the set-up can be a useful product for those in the higher brackets of taxation.
In addition, the firm says individuals can benefit from a shorter mortgage term, greater financial flexibility and cut out the logistical issues of remortgaging in order to obtain better rates.
Defaqto banking head David Black explained: "If offset mortgages are approached as a fundamental part of the borrower's financial planning process they can offer great benefits.
"However, they are definitely products for the long-haul and should not be contemplated unless borrowers are fairly certain that they will be able to leave what can be significant sums of money more or less untouched in savings accounts over the mortgage term."
A recent report from Intelligent Finance suggested that an individual offsetting £5,000 against a £100,000 mortgage could potentially net savings of £10,227 over the course of 25 years.
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