An offset account could save you thousands and shave years off your mortgage.
What's in this guide?
- How do offset accounts work?
- Why should I consider an offset account?
- Will a mortgage with an offset account cost me more than a standard mortgage?
- Are there different types of offset accounts?
- How much interest can I save by using an offset account?
- What fees do I need to be aware of?
- Frequently asked questions
- Start your mortgage application
Offset mortgages are often used as a way to save money. They are used to help reduce your monthly payments or shorten the term to enable you to be mortgage-free sooner.
How do offset accounts work?
In this hypothetical situation, interest is applied to £230,000 instead of the full £250,000 owed. As savings grow, the amount saved on interest also grows. Effectively, this reduces the amount of interest charged over the life of the mortgage.
Why should I consider an offset account?
Will a mortgage with an offset account cost me more than a standard mortgage?
Are there different types of offset accounts?
- 100% offset accounts are the most common form. As explained in the above table, the balance of the offset account is deducted from the outstanding principal before interest is calculated. The balance of this offset account doesn’t earn interest.
- Partial offset accounts can be explained as an online savings account where the interest which would be generated by the balance pays off the principal of the mortgage, without the borrower having to pay tax on the interest. A 100% offset account can be a far more effective tool for reducing the interest paid on a mortgage.
How much interest can I save by using an offset account?
From this example, taking the mortgage with an offset account saves a whopping £136,000 over the life of the mortgage. It also reduces the term of the mortgage from 25 years to 19 years and 8 months. Owning a home outright, debt free, is a goal that is well worth fast-tracking. Especially as first-time buyers are waiting longer to plunge into the property market.
What fees do I need to be aware of?
Build up your offset savings account by making regular deposits using your income, rental earnings or any other money you accumulate.
- Long-term benefits of offset accounts
If you move into a new house but hold on to your previous property then you can turn your mortgage into an investment loan if you rent your property out to new tenants.
Frequently asked questions
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