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Offset Mortgages
Offset mortgages allow your savings to be set against your mortgage, thus reducing the amount of interest you pay on the net balance. Generally, a savings account is set up alongside your mortgage. The money in the savings account is ‘offset’ against the mortgage. This means that you will not earn any interest on your savings, but you will not be charged any interest on the same amount of your mortgage either - as shown by the diagram below.
This could potentially save you thousands of pounds in interest, and you can benefit from this in one of two ways, either by paying off the mortgage early or by reducing the monthly mortgage payment when you need to.
For example, on a £150,000 loan you can reduce your mortgage term by a year, just by having £6500 in savings. (This rate in this example is 2.89% 2 year tracker, reverting to 3.99% for the rest of the term 3.9% APR). That's without overpayments!
This type of mortgage is likely to be suitable for customers with a higher degree of financial awareness due to the complexity of how the account operates. It is unlikely to be suitable for customers who do not have surplus disposable income or savings. In addition, interest rates for these products are likely to be higher than for similar products without ‘offseting’ features.
We are specialists in larger mortgages, with extensive links to private banks, niche lenders and private investors, all of whom have an appetite for larger and more complex loans, often based on a flexible mortgage facility where clients can be made unlimited, penalty-free overpayments and withdrawals, rather than linking to seperate savings account.
Offset mortgages offer alternative to poor savings rates (this article originally appeared in the Financial Times on 26 March 2010)
This Week's Top Rates
Initial rate: 3.85%
Period: 3.85% fixed until 31/05/2014. Reverting to: 5.99% SVR The overall cost for comparison is 5.8% APR.
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Initial rate: 2.95%
Period: 2.95%, Offset BBR Tracker + 2.45% until 30/06/2014. Reverting to: 4.74% The overall cost for comparison is 4.4% APR.
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Some of this week's top interest rates are listed above; the actual rate will depend on upon your circumstances. Please not that this information does not contain all the details you need to choose a mortgage, ask one of our advisers for a personalised key facts illustration on 020 7519 4900. The rate information displayed may become out of date at short notice.