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Offset Mortgages

Offset

With an offset mortgage, your main bank current account or savings accounts (or both) are linked to your mortgage (and are usually, but not always, held with the mortgage lender). Each month, the amount you owe on your mortgage is reduced by the amount in these accounts before working out the interest due on the loan.

For example: If you have an interest-only mortgage of £100,000 and have savings in your ‘offset account’ of say £25,000, you pay interest on £75,000.

If, in the next month you spend £5,000 and so only have £20,000 in your ‘offset account’, you pay interest on £80,000.

So, as your current account and savings balances go up, you pay less on your mortgage. As they go down, you pay more.

They can also be tax-efficient if you pay tax on your savings. This is because you do not earn any interest on your savings and so don’t pay any tax on them. Instead you pay less interest on your mortgage. This amount is usually greater than the interest you would have earned after tax on your savings, if they were not offset against your mortgage. This benefit is greater if you are a higher rate taxpayer.

With some lenders, the savings accounts of family members can be combined to offset against one person’s mortgage. This could be useful if, say, you want to help your child buy their first home.

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We normally do not charge a fee for mortgage advice however a fee paying option is available. Our typical fee is 1.5% of the loan to be arranged although the actual fee will depend upon your circumstances and may be lower. Think carefully before securing other debts against your home.Your home may be repossessed if you do not keep up repayments on your mortgage.

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