Offset mortgages

Offset mortgages Got some savings in the bank? An offset mortgage may be for you.

With an offset mortgage, the more money you’ve got in the bank, the less interest you pay on your mortgage. That’s because your savings offset your mortgage payments. One in 10 mortgages are offset mortgages according to The Independent.

How offset mortgages differ from standard mortgages

With a standard mortgage for a new house or other property, the interest you pay on your mortgage is solely in regards to the full amount borrowed. However, an offset mortgage takes into account what you have in your savings. It then deducts your total savings from your mortgage amount so you only pay interest on the difference. It means you can save a substantial amount of money each month.

An example of how this works is as follows. You have £50,000 in savings and your full mortgage amount is £250,000. The savings amount would be taken away from the mortgage amount meaning you only pay interest on £200,000 instead of £250,000. As your savings rise or fall, so this affects the amount you pay interest on.

The benefits of an offset mortgage

The interest rates are comparable to standard mortgage deals and normally competitive.
You always have access to your bank savings.
The more savings you have, the less your interest payments are.
The interest made on savings for higher and standard rate taxpayers are not subject to tax, which means the equivalent return is the same as the mortgage rate.

How much could an offset mortgage save you?

An example given by The Independent shows a new house buyer getting a £100,000 mortgage and having £7,500 savings in the bank. If the mortgage rate was 3%, it would mean £7,753 would be saved on the total interest cost. In turn, a 25-year mortgage would be cut by 16 months. If £200 was put away in savings each month, it would reduce interest charges by £17,159 and a 25-year mortgage would be shortened by three years.

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