An offset mortgage is a fully flexible mortgage which allows a borrower to keep balances in a linked account to reduce the interest payable on their mortgage balance.
An offset mortgage links your bank account balances to your mortgage in order to reduce the mortgage balance you’re charged interest on.
Money in the linked account(s) is set against the mortgage balance and interest is only charged on the outstanding amount, meaning interest payments are lowered or alternatively, depending on the lender, the term of your mortgage could be reduced.
The principle is simple: by depositing your savings or having your everyday current account with the lender the balances in these accounts can be used to reduce the overall interest paid on the mortgage, whilst keeping the money accessible. Many offset lenders calculate interest daily, meaning every day your savings are reducing the cost of your borrowing. Additionally, by utilising your savings to offset your mortgage interest you avoid paying tax on interest that savings deposits would normally attract. Some lenders have the facility for multiple accounts (such as current accounts, savings and ISAs) but for the purposes of interest calculation, all balances are accumulated. Flexible deals in many cases allow you to make extra lump sum or monthly payments, take payment holidays and make underpayments.How they work
Offset Mortgage FAQ’s
Offset mortgages suit those with significant savings. The benefits depend on your financial situation, and consulting with a broker is advisable to ensure it’s right for you.
Yes, you maintain access to your savings. The balances are used to calculate interest but remain accessible to you.
Offset mortgages may have slightly higher rates compared to standard products. It’s important to compare these differences to see if the savings outweigh the costs.
Your savings or linked account balances are used to reduce the mortgage balance you’re charged interest on. This can lower your monthly payments or shorten the term of your mortgage.
An offset mortgage links your savings or current account balances to your mortgage, reducing the interest you pay by offsetting your savings against the mortgage balance.
Will You Benefit From An Offset Mortgage?
Offset & Flexible mortgages suit certain type of clients but they can often have slightly higher interest rates or fees so it is essential to compare the scheme against a mainstream product to ensure the benefits and savings really do work for you.
With more and more lenders operating in the offset and flexible market, all offering different features on their products in competition with each other it is crucial that a comprehensive comparison is made. With instant access to over 12,000 mortgages and over 90 lenders, we can compare products at the touch of a button thereby ensuring that you are getting the most suitable advice and the correct deal to suit your individual circumstances.
Our quotations and illustrations are completely free so you have nothing to lose and much to gain by contacting us to find out what we have to offer.
They can be tax-efficient as you don’t pay tax on savings interest, since interest is not earned on the defensive balance held in offset accounts.
You might face higher interest rates, need a larger deposit, and have fewer lender options. Whether these outweigh potential savings depends on your situation.
Yes, many offset mortgages allow for overpayments without additional charges, helping you to pay off your mortgage sooner.
Daily interest calculations mean your savings reduce the cost of borrowing every day, potentially lowering the total interest you pay over time.
Benefits include reduced interest payments, tax efficiency on savings, potential to pay off the mortgage quicker, and flexibility in managing payments.
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Some lenders allow family members to contribute to the offset account, though you should verify specific terms with your lender.
Yes, especially if they have fluctuating income and significant savings, as they can manage tax liabilities and mortgage payments more effectively.
While important, the rate should be weighed against potential savings and the flexibility offered by the offsetting facility. A comprehensive comparison is crucial.
Many offer flexibility, allowing for underpayments, overpayments, and payment holidays, accommodating fluctuating financial conditions.
Withdrawing funds means less is offset against your mortgage, potentially increasing monthly interest if balances are lowered significantly.