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Mortgage Advisor & Director
What is an offset mortgage?
Offset mortgages are linked to your savings or current accounts to reduce the amount of interest charged.
How does an offset mortgage work?
Rather than using your savings to pay off your mortgage, they sit in a separate savings account that pays no interest. The lender then removes this value from your overall mortgage and only charges interest on the difference. For example, if you have £20,000 in savings and a mortgage of £120,000, you will only be charged interest on the £100,000 difference between the two.
What types of offset mortgage are there?
Current account offset mortgages
Current account mortgages allow you to combine your mortgage with your current account, rather than keeping your savings and mortgage accounts separated. Your wages and savings are held in an account along with your mortgage, which shows as a negative balance. While your salary and savings are in the account, they are used to offset the interest.
Family account offset mortgages
There are a few offset mortgage providers that allow you to link accounts owned by your family or friends. While the funds are being used for this purpose, they don't accrue interest; rather, they offset the interest that you pay on your mortgage. They are still able to access the funds. This option allows family members or friends to help make your mortgage cheaper without contributing any money upfront.
There are typically three benefits to choose from with offset mortgages:
- Reduced monthly repayments - whereby you save money on a short term basis.
- Repayments that reduce annually, assuming that the interest rate remains the same.
- A reduced term with the same repayment amount. With this option, you pay less interest as you are repaying your mortgage quicker.
Can you access your savings with an offset mortgage?
Yes, you can take money out of the account that is linked to your mortgage, and you can also continue to pay into your savings account.
As the interest you pay is linked to the amount in your savings account, this impacts on your mortgage:
- If you withdraw funds your interest and monthly payments will increase
- If you make deposits to the account your interest and monthly payments will reduce.
The majority of lenders will permit you to make overpayments on your mortgage, which will reduce your interest and monthly payments. In this scenario, however, you will not be able to reaccess the funds should you need to. If you were to pay into your linked savings account, the interest would reduce, and you would still be able to access the funds.
How much can I save with an offset mortgage?
Mortgage interest rates are typically higher than savings interest rates. This means that the interest saved on your offset mortgage is likely to be more than you would accrue on your savings. The amount you will save will depend on the value of your savings, and the interest rate on your mortgage.
Tax benefits for offset mortgages
There are also tax benefits with offset mortgages as savings that are used in this way are not taxed. If you are a higher rate or additional rate taxpayer, the benefits are likely to be more significant.
How to get an offset mortgage
At Teito, our team of experienced advisors have helped many people like you to find their perfect offset mortgage. We work with hundreds of lenders to find you the best rates possible. To get started, submit our simple online form, and we promise to make your mortgage journey as stress-free as possible.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.
