What is an offset mortgage?
With this mortgage, your savings are offset against your mortgage loan, which means that, instead of earning interest on your savings, you are charged less interest on your mortgage. Your monthly mortgage payments are calculated on the full balance of the mortgage loan, regardless of the amount of your offset savings. This results in overpayments being made each month, equivalent to the amount of the offset interest.
When a mortgage payment recalculation event* takes place, the new payment is calculated on the reduced mortgage balance.
*Recalculation events include interest rate changes, a mortgage capital repayment, product switches, change of repayment method and change of mortgage term.
Why might an offset mortgage be useful for me?
An offset mortgage may be useful if you do not plan to immediately use all the funds that you release from your property. For example, you may plan to do some home improvements in one year’s time. With an offset mortgage, you can borrow the money now but not pay interest on it until you need it, simply by leaving the funds in the offset savings account until that time. It’s also useful if you have surplus savings, as you can keep these in the offset savings account and reduce the interest charged on your mortgage.
How does an offset mortgage work?
Let’s say you had a mortgage of £200,000 and a total balance of £50,000 in an offset savings account linked to your mortgage. We’ll calculate your mortgage interest on the remaining balance of £150,000 only – potentially, saving you thousands of pounds in interest payments over the term of your mortgage.
Operating your savings account
You will be provided with a passbook for your offset savings account. You can add or withdraw your savings whenever you want without penalty, either by cheque, Faster Payment or cash (within operating limits). You can open your account with a nominal balance, but the more you pay in, the less interest you will be charged on your offset mortgage.