An Offset Mortgage simply allows you to set the balance of a savings account you might have against the outstanding loan balance when calculating interest charged on your mortgage.
If you have surplus savings then this has several advantages. First of all, with interest payable on savings currently so low, any interest you save on your mortgage is likely to be much more than any interest you might receive on your savings. Furthermore, the interest you receive on your savings, unless they are in an ISA, will be taxable, thus reducing this sum even further at your marginal tax rate, whereas savings in mortgage interest are not taxed. You will receive the entire benefit.
Example:
£200,000 mortgage
4.94% fixed offset rate 5 years
30 year term.
Saving £500 per month over the five years could save you £1,367 in interest
Saving £500 per month over the term will clear your mortgage at year 20 (if interest rate remains the same) saving you £166,239 in interest.
(calculation completed January 2025).
Some offset mortgages will even let you set other accounts against your mortgage balance when calculating interest. If your partner or perhaps your parents have savings that they are willing to associate with your mortgage then they can still draw down on their savings as they wish but your interest liability will be reduced accordingly. Of course, they are forfeiting their interest which whilst this may not be painful when savers are receiving such low returns, may become an issue when rates rise.
The big advantage to offset mortgages is that you can retain flexibility, Perhaps you want to keep £30,000 in savings just in case you lose your job or need to pay a large bill, but you’d like to reduce your interest liability whilst the cash stays in the bank. The self employed find the offset mortgage attractive for this reason.
It is worth noting that offset mortgages may incur larger charges and higher interest rates, so you must consider the package as a whole when comparing your options.
For more information contact us or call 01628 507477.
Recent posts
Best UK Mortgage Rates this Week
Yesterday
Here are the lowest fixed mortgage rates of the week, available to first-time buyers, home movers, buy-to-let, and those remortgaging.
Call us for more information: 01628 507477 or email: team@mortgagerequired.com.
Young borrowers concerned about credit score
2 days ago
Almost half of young adults are worried about their credit history stopping them from renting or buying a property, according to data from Loqbox
How to add value to your property this summer
13 days ago
Different seasons can have a noticeable effect on property prices.
Research from Zoopla shows that spending out on certain features can fetch up to £29,000 during the summer months.
Monday 22nd June saw Keir Starmer resign as Prime Minister and Labour leader. The resignation does not directly impact mortgage rates, as changes were taking place before this announcement. However, it could influence mortgage rates indirectly through financial markets and future government policies.
Homebuying reform to cut homebuying times by around four weeks, and save first-time buyers around £650, says the government.
Buying your first home is a huge milestone, but it can also be a complex process. There are several factors a first-time buyer should consider before making an offer on a property, including understanding the difference between leasehold and freehold and checking council tax bands.
We’ve detailed some questions you can ask your estate agent to help you make an informed decision.
Signs it's time to remortgage
22 days ago
Remortgaging means switching to a new mortgage deal. This will either be with your current lender or a new one.
Getting advice and moving to a new deal when the time is right can mean lower monthly mortgage payments, better interest rates, or releasing equity from your property.
Here are some signs it may be time to remortgage.
According to Nationwide Building Society’s latest House Price Index, house prices dropped 0.6% month on month in May – the first monthly decline this year.
More information
Trusted by
