Offsetting your Mortgage -
How does Offset Mortgage work ?
Every day the mortgage lender calculate ‘interest' on the balance in your savings account, at the same rate as your mortgage. No interest is paid on your savings, but at the end of each month, this amount is taken from your offset mortgage, reducing the amount you owe in the same way as an overpayment would.
Can I use Offset to reduce my monthly payments ?
Because any balance in your Offset Account is reducing the amount you owe on your mortgage, whenever the lender recalculate your mortgage payments (for example, each time the Bank of England changes its interest rate), this will be taken into account and will make your new repayments lower than they would otherwise have been.
Benefits of an offset mortgage deal
Whichever option you choose, you have access to your money without notice and there is no limit on the amount of withdrawals and deposits you can make, subject to the usual branch withdrawal limits.
But, remember, the more you have in your account, the more you can benefit with your offset mortgage deal.
- The Offset mortgage account is opened with a Nil balance at the time that you complete your mortgage application form.
- Once your mortgage offer has been accepted, you can put money into your savings account to offset against your mortgage.
- There is a minimum operating balance of just £1 and you can make additional investments at any time, subject to the maximum permitted.
- You can invest money in your Offset mortgage Account, but the amount invested should not exceed the amount outstanding on your mortgage, as you will not gain any offset benefit on any amount above your mortgage balance.
- The higher the balance you maintain in your savings account, the more you will save on your mortgage.
- No interest is paid on your Offset mortgage account, in effect, the money in your account will earn the equivalent of the rate charged on your mortgage.
- You will not pay tax on your Offset mortgage deal as no interest is paid (Subject to any future changes in Inland Revenue policy or legislation).
- You can access your funds without notice or charge.
Offset Mortgage
An Offset Mortgage is different to other mortgages in that you have a dedicated savings account linked to your offset mortgage account. Generally, you pay a higher rate of interest on your borrowings than you receive on your savings. If you are a taxpayer, you may also pay tax on the interest you earn on your savings.
But with Offset mortgage, by linking your savings balance to your mortgage, you make your money work harder. In fact, you're being really clever with your cash! Your mortgage and savings are separate, but instead of earning interest on any money held in your savings account, this amount is offset against your mortgage.
How do I use Offset mortgage to pay off my offset mortgage deal early ?
The Offset benefit reduces the amount you owe on your mortgage. Whenever the lender recalculate and reduce your offset mortgage payments (for example, each time the Bank of England reduces its rate), you could choose to keep your payments the same, which means you would be overpaying your offset mortgage deal. Doing this throughout the life of your offset mortgage deal enables you to pay off your offset mortgage early.
Does offset mortgage deal allow me to use my savings ?
You can access your savings at any time with no penalties with an offset mortgage deal.
So whether you're saving to improve your home, for school fees or a future tax bill, your money will be working harder for you in the meantime with an offset mortgage account.
Offset Mortgage deal: case study
The key feature of an offset mortgage deal is the ability to reduce the interest charged by offsetting a credit balance against the mortgage debt. For example, if the mortgage balance is £200,000 and the credit balance is £50,000, interest is only charged on the net balance of £150,000.
