An offset mortgage works to help you reduce your monthly mortgage interest charge by using other savings to reduce the outstanding balance. You can pay off your mortgage sooner or reduce your monthly payments to make life more affordable.
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If you’re looking for a simple way to reduce your monthly payments, an offset mortgage could be a good choice. Get in contact with us today on 01184 639037 to find out more about how to pay off your mortgage faster.
Who can benefit from an offset mortgage?
Borrowers who have significant savings could benefit from an offset mortgage. Your offset mortgage can enable you to pay less interest overall, reduce your mortgage term and enjoy lower repayments on your mortgage.
How does an offset mortgage work?
Offset mortgages work by using a linked savings account to reduce the balance on which your monthly interest payments are calculated. Mortgage payments must still be made every month, but you may also have flexibility to overpay your mortgage.
Reduce monthly payments
You can reduce your mortgage payments by offsetting the savings account with the mortgage balance. The savings balance reduces the interest payable, which means you can benefit from lower mortgage repayments for as long as you retain money in your offset savings account. Lenders offering offset mortgages will provide offset savings accounts as well, making it easy to get linked accounts. The more savings you add to your offset, the cheaper your mortgage becomes.
Reduce mortgage term
Alternatively, you can use the offset savings balance to reduce your mortgage term over time by continuing to pay the monthly repayment amount which would have been charged if you didn’t have the savings account. This can save you years on your term and reduce the overall cost of your mortgage by a considerable amount.
Your offset account doesn’t pay interest on your savings, so it won’t be eating into your personal savings allowance for income tax. This means you can earn savings interest elsewhere before you pay tax by using an offset product.
What happens at the end of an offset mortgage?
At the end of your mortgage term, you will need to pay back any remaining loan amount or remortgage in the same way as any other mortgage coming to the end of the term. If you do not keep up repayments, your home may be repossessed, like any other mortgage. Your lender will not automatically access your savings account in order to pay off any outstanding balance.
Looking for an offset mortgage? Get in touch with Simmonds Mortgage Services today
If you’d like to pay your mortgage off earlier and have savings currently at a lower interest rate than your mortgage interest rate, you could consider an offset mortgage account. Our specialist mortgage brokers with access to most lenders can help you find the best offset mortgage rates and the right deal for you.
Is an offset mortgage cheaper than a traditional mortgage?
Over the life of the mortgage, an offset could be cheaper than a traditional mortgage, despite the fact that the interest charged is usually higher. Lower monthly payments due to the offset means you could end up paying less overall. This type of product suits borrowers with cash savings who don't want to use the money for a larger deposit so that they can have instant access to their savings in the future.
Can I offset 100% of my mortgage?
Yes, the maximum amount you can offset and still save interest is limited to your current outstanding mortgage balance. If your offset savings balance exceeds your mortgage balance, you may wish to consider moving the excess to another savings account or ISA so that it can earn interest.
Can I access my savings in the offset account without asking my lender?
This depends on the terms of your mortgage but it is often possible to take savings out of your account, leaving a smaller balance to help pay your mortgage quicker or reduce your interest charges. Ask your lender so you understand what you can and can't do.
What's the difference between flexible mortgages and offset mortgages?
A flexible mortgage allows you to vary the amount you pay each month. You can make overpayments, underpayments and take a break from your monthly payments without notifying your lender in advance. A flexible mortgage might be a better option if you receive lump sums such as bonuses as these can be paid into your mortgage at any time to reduce your balance and your mortgage payments.
Some flexible mortgage lenders allow you to access any additional money you have paid into your mortgage as long as you continue to make your monthly repayments.
How is an offset mortgage affected by interest rates?
An offset mortgage can be a standard mortgage with a variable interest rate which moves with the Bank of England base rate or you may be able to find fixed rate offset deals. If the mortgage interest rate falls during the fixed period, you will not benefit from interest savings.
Do offset mortgages have early repayment charges?
Most lenders will impose early repayment charges on fixed-rate mortgages if you want to pay them off during the fixed period. Check with the lender or your mortgage broker about any early repayment restrictions before signing your mortgage agreement.