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?

offset mortgage calculator

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.

How to Use Offset Mortgage Calculator
  • Enter your current or expected mortgage amount and term
  • Enter the details of your savings, both current and any monthly amount you plan to add. Enter How long you want to compare your offset vs a standard mortgage. It is best to compare over the product period i.e 2 years if you are looking at a 2 year tracker rate for example.
  • Enter the interest rate and any fees payable for a standard mortgage
  • Enter the interest rate and any fees payable for an offset mortgage
  • Calculate
How big is your mortgage?
£
years
How much do you have in savings?
£
%
£
years
Using a standard mortgage
%
£
Using an offset mortgage
%
£
Will you slash the interest you pay?

Here's how much offsetting your savings could save on your monthly and annual mortgage repayments, and by how long it could reduce the term of your mortgage (assuming rates stay the same).

The tables below factor in any interest lost on your savings to calculate the true cost over each year. Offsets generally win over the long-term (see graph), but you could save more by going for a cheaper short-term standard deal and switching to another when the term is up.

Note: Those with a relatively small sum in savings compared with their mortgage balance will probably not find offset the best option. Higher-rate taxpayers who earn less from their savings after tax is deducted may be best off with an offset, compared with the top paying savings account. They also suit those who'd like to overpay but don't want to lose access to their savings.

Standard mortgage + savings vs offset mortgage
MORTGAGE & SAVINGS OFFSET MORTGAGE
Monthly repayment
In first year
Interest cost
Interest earned on savings
Net interest cost
Total costs over 3 years
Interest cost
Interest earned on savings
Net interest cost
Over full term*
Interest cost
Interest earned on savings
Net interest cost
Net interest cost per year

This illustrates how your outstanding mortgage balance will decrease over the term of your loan. This does not account for interest rate changes or other fees such as early repayment charges.

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?

offset mortgage

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:

Disadvantages of an offset mortgage

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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