What Is an Offset Mortgage?

An offset mortgage is a mortgage with a savings/current account that’s linked to the mortgage account. This savings account is sometimes referred to as "offset account". Why would you want a savings account linked to your mortgage?

Because it can reduce the amount of interest you’re charged.

With an offset mortgage, the lender deducts the savings in your linked account from the outstanding mortgage balance to give a net balance. They then charge interest on this net balance, as opposed to the total outstanding mortgage balance like they would with a normal mortgage.

You can benefit from the reduced interest charges in 2 main ways, you can either:

  • Make lower monthly payments with a payment reduction offset
  • Make the same monthly payments that you would on a normal mortgage, so that you essentially make overpayments on your mortgage and pay it off quicker, with a term reduction offset

Payment reduction offsets are available on both repayment and interest-only bases. Term reduction offsets are usually best applied to repayment mortgages.

It's worth bearing in mind that fewer lenders offer offset mortgages which means they often come with slightly higher rates than compariable products.

Would You Benefit from an Offset?

Offset mortgages are particularly useful if you have significant amounts in savings – or are expecting to acquire some in the near future – and you require a mortgage. They're also effective if you wish to overpay on your monthly payments but would like access to those overpayments at any time. Offset mortgages are available for purchases or remortgages.

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Process for Buying a Home/Remortgaging

1. First Conversation with Adviser

When you phone us, you can either arrange a phone appointment with your adviser or a face-to-face meeting – whatever suits you. Your adviser will ask you some questions then go away and find you the best deal for your circumstances and future needs. They’ll organise a follow up during which they’ll present you with what they’ve found.

2. Decision in Principle

Once you’re happy with their recommendation, they’ll go about securing your DIP (Decision in Principle) - which is basically a promise from the lender that they’ll loan you money on the condition that the information you’ve provided is correct and subject to a valuation of the property.

3. Offer on Property/Remortgaging

After the lender has agreed your scenario, you’ll be in a position to make an offer on a property or move forward with the remortgaging.

4. Pre-Application and Submission

Following the acceptance of your offer, we’ll send you some information which explains all the documents we need to submit to the lender. You’ll be assigned a client relationship manager who’ll check and submit certified copies of your documents; they’ll liaise with both you and the lender. Your adviser will then submit the fully packaged mortgage application.

5. Lender Underwriting and Valuation

The lender will underwrite your application; this basically means they’ll verify that the information you’ve provided is correct and review all your documents for themselves. They’ll also instruct a valuation for their purposes on the property to make sure there are no significant problems with it.

6. Mortgage Offer

If the lender is happy with everything they’ve found, they’ll send you a mortgage offer. They’ll also send us a copy.

7. Conveyancing

After you’ve accepted your mortgage offer, you’ll go through the legal part of the process, known as conveyancing. This is where the solicitors/conveyancers draw up contracts and organise the actual, legal purchase of the property/remortgaging. If buying, you’ll also need to arrange buildings insurance at this stage, making sure it’s in place from exchange.

8. Exchange and Completion

If you’re buying a property, your conveyancer/solicitor will exchange contracts with the seller’s conveyancer/solicitor; it’s at this point that you would put down your deposit and be legally bound to the property. The purchase will complete when the money is transferred on an agreed-upon date. If you’re remortgaging, then your conveyancer/solicitor will set a date to draw down the funds and pay off any existing lender(s) once the mortgage offer’s released.

Things to Consider When Taking Out an Offset Mortgage

Whilst every offset product achieves the same goal in principle, there are some subtle differences between lenders.

A few of the main differences include:

  • The number of accounts that can be linked to your mortgage
  • Some lenders will accept savings from a family member to be offset against the mortgage, subject to specific requirements
  • The type and notice arrangements of these accounts
  • The access you have to your savings should you need them
  • The offset products they offer, whether it’s payment reduction, term reduction or both

Your mortgage adviser can go through the products available with you. You may need to discuss non-standard construction mortgages with your broker if you have special circumstances.

Offset FAQs

Can I Get a Buy-to-Let Offset Mortgage?

It is possible to get an offset mortgage or remortgage on a buy-to-let property, but they're quite rare.

Are Offsets Only for Higher Rate Taxpayers?

Although offset products come with strong benefits for higher rate taxpayers, all offset borrowers will benefit from the ability to reduce their mortgage terms or monthly payments.

Can I Get an Interest-Only Offset Mortgage?

You can get an interest-only offset mortgage, but they only really work with payment reduction. It's possible to take out interest-only offsets for residential purchases and remortgages, as well as buy-to-let purchases and remortgages.

Do Offsets Cost More?

Offset products tend to come with slightly higher rates than normal mortgages, although the fees are generally the same. Nonetheless, the benefits offered by the linked savings account can more than make up for any extra cost.

If you want to see what kind of rates are available for normal mortgage products - i.e. those without a linked savings account - you can compare the best fixed rate mortgage deals or trackers currently available.

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