OFFSET MORTGAGE CALCULATOR
An offset mortgage could save you a lot of money! Use our offset mortgage calculator to find out how much you could be keeping in your pocket now. If you have any other questions just get in touch with our advisors who will be happy to help!
Would An Offset Mortgage Work For You?
Our offset mortgage calculator will show you how offsetting savings could reduce the total interest due on your mortgage and how much money can be saved when comparing an offset mortgage with a standard mortgage.
An offset mortgage allows you to use savings to reduce the amount of mortgage interest you’re charged over the term of your mortgage. Read the information provided in this guide for further information alongside our offset mortgage calculator to work out whether an offset mortgage could be the right option for you.
What is an Offset Mortgage?
With an offset mortgage, you link your current and or savings account balances to your mortgage which then reduces the overall interest you need to pay. An offset mortgage can be linked to one or even multiple bank or building society accounts.
The offset funds can either reduce your monthly payments or shorten the payment term to help you pay off your mortgage quicker and potentially save thousands of ￡’s in interest.
Although offset mortgages come with a large amount of flexibility, they can be available with fixed interest rates, however, it is far more common for an offset mortgage to be offered with a variable rate.
How does an Offset Mortgage work?
Firstly, your offset mortgage and the accounts that you want to link with, will usually need to be held with the same financial provider and the money will usually need to be held in a specific offset account.
The interest you owe on your mortgage will then be calculated based on the total amount you have borrowed for your mortgage, minus the amount of money that is held in the linked account(s).
So for example if you have £150,000 owing on your mortgage and ￡50,000 in your linked offset accounts, the interest payable would be calculated on ￡100,000.
You can either benefit from having lower monthly mortgage payments due to the lower interest rate bill or you can opt to keep you monthly payments at the same level that they would have been without any funds offset and reduce the overall term of the mortgage, so that you pay off your loan and become mortgage-free sooner.
Not all lenders offer the ability to lower your monthly payments when using an offset mortgage so be sure to check the details carefully depending on your intended strategy.
With some offset mortgages you will be able to change whether your funds reduce the term or the monthly payment as many times as you like throughout your mortgage term, whilst with
others you will need to make the choice at the start and stick with it.
Offset mortgage rates
Fixed and standard rate are the most common type of offset mortgage. As with other mortgage types, fixed rate deals usually offer the best rates. They can be fixed for 2 to 10 years, after which the rate moves to the lender’s SVR. Standard rate mortgages offer the most flexibility.
Other offset mortgages include tracker mortgages with a variable interest rate that follows the Bank of England base rate, and discount mortgages with a set discount on the lenders SVR.
Overpaying your mortgage
What does overpaying mean? Overpaying your mortgage means that you are paying more than the agreed amount set out in your contract. Most mortgage deals allow you to overpay by 10% each month. If you overpay anymore than that you will be penalised by the lender.
Our mortgage overpayment calculator can be used to find out how much interest you could save by making overpayments.
With an offset mortgage however, your savings reduce your overall mortgage debt so you are effectively making penalty-free overpayments.
Advantages of an offset mortgage
The main advantages of having an offset mortgage include:
- If you can make good use of the offset features then you will owe less in interest overall and ultimately be able to pay off your mortgage sooner.
- You still have access to your funds in the current account and savings account should you need them in an emergency.
- Your money works harder for you each month by deducting more interest from your mortgage than you’d usually gain on your savings.
- You can usually still access your savings account, making your finances more flexible.
- There are tax benefits with offset mortgages.Your savings will no longer be taxed because they are not earning taxable interest.
- Offset mortgages will often allow you to make overpayments, although be aware that early repayment charges may apply.
- Some lenders will allow you to offset your own savings against someone else’s mortgage,which is a good way to help a family member get on the property ladder.
Disadvantages of an offset mortgage
- Higher rates can often be charged for offset mortgages, due to the flexibility they offer compared with other mortgage products. To compare the rates of offset mortgages with other types of mortgages, use our mortgage comparison tool.
- You won’t usually earn interest on any savings that you are using to offset your mortgage.
- Only a few lenders offer offset mortgages, so your choice will be limited.
- You might be better off using the savings you would have put into a linked account to pay down the mortgage itself.
Frequently asked questions
Yes it is usually quicker to pay off an offset mortgage because some of the money you owe is offset by your savings and the amount you
Yes you can still withdraw money from your savings account with an offset mortgage but be aware that you may need to keep a minimum balance in your account as part of your deal. If you do take money out of your savings, it will no longer offset your mortgage and your monthly payments will go up.
You could put down a bigger deposit instead of keeping your savings in an offset account. With a bigger deposit, you may be offered lower interest rates. However, you will no longer have access to this money, whereas with offsetting, you will still have access to your money if you need it.
If you already have a mortgage and want to switch to an offset mortgage deal, it’s possible to remortgage. Keep in mind, though, that you may have to pay early repayment fees if you leave your current mortgage early.
Some lenders do offer offset mortgages on a buy-to-let property. They can be a good option for landlords wanting to reduce costs because changes to the law in 2017, mean that landlords can no longer deduct interest payments from their tax bills.
It is a good idea to seek advice to help you decide whether an offset mortgage is right for you, especially if you already have savings that earn good financial returns.
Most offset mortgages require a deposit of 25%
Final Considerations
Whether an offset mortgage is right for you will depend on your individual circumstances and financial situation.
Offset mortgages are complicated and to work out how much you will actually benefit from this mortgage type can be confusing so we advise that you seek expert advice. You can get in touch with our team of mortgage advisers, it’s free!
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Hello! I’m Matthew and I’m an expert in making, saving, and borrowing money!
Home loan mortgages, development finance, commercial lending, etc (oh the joy) were not exactly the things I dreamed of dealing with as I was growing up. But with 10+ years of financial wizardry under the belt, it has become something of a passion and outlet for providing help to those that need it.
“Knowledge is power is time is money”
The vast majority of cases are handled free of charge! However, there are some more complex situations where a fee will need to be applied.
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