"Flexible mortgages are perfect for contractors, " says an IFA Expert which specialises in contractor financial advice.
"You can take a break from payments between contracts, or away on a long holiday, and then when you start earning again the previous payments are rolled up into one extra payment and then you carry on paying as usual, " explains the expert.
Offset mortgages are a hybrid flexible mortgage which allow you to use the balance of linked savings and current accounts to reduce what you pay in interest on your mortgage. On a daily basis the total of these credit balances is swept across your mortgage debt and you only pay interest on the balance between the two. These schemes are great for contractors who often have money on hand throughout the year, but don't want to lock it away by formally paying off a lump sum of the mortgage.
You may have some cash savings for personal or tax, or just declared a dividend to last a few months. All this extra cash in your accounts can be used to offset against your mortgage instead of gathering dust in poor performing accounts elsewhere.
Tax Bonus!
"Offsetting against your mortgage can also have tax benefits, " says the expert. "Normally any interest earned in savings accounts is taxed at up to 40% if you are a higher rate tax payer. But, with an offset, you would be avoiding paying interest on debt and there would be no tax due. A higher rate taxpayer would benefit 'tax free' from the interest saving which represents an equivalent 'return' of 10%."
Access great rates
Offsets are normally lifetime base rate trackers so you don't need to shop around again once every few years in an increasingly frustrating mortgage market. And further, whilst some lenders are not passing on benefits of reductions in Bank of England rates, with a base rate tracker the lender has no option but to pass on the full saving.
Changing to an offset is easy explains the expert: "We have negotiated contract based underwriting with many of the main providers especially for our contractors clients. And often the lender will also help towards any admin costs."
"We can even build in a facility for you to draw down equity on your house if ever required, safe in the knowledge that you won't pay a penny for the money until you actually need it. Any eventual drawdown is charged at mortgage interest rates which could be far less expensive than personal loans or credit cards, " the expert adds.
Offsets are normally free of long term tie ins so you can try it for a few years to see whether you make full use of the flexibility without being locked in forever. "From our experience it's likely that you'll learn to love the freedom the scheme offers and stay the full term. Flexible working is truly complimented by a flexible mortgage, " says the expert.