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Best Offset Mortgage Deals

Offset Mortgages can be a great way to save money on your mortgage or reduce the mortgage term, read our guide to find out why and how.

Offset Mortgages at a Glance:

Here are the summary facts about offset mortgages:

  1. Good for savers or people with savings
  2. Save money on mortgage interest or reduced term
  3. Good for parents to help kids buy a house
  4. Can end up with a lump sum when mortgage paid
  5. Competitive offset mortgage deals exist

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See the Citizens advice bureau to avoid having financial problems from taking out an offset mortgage.

Compare the Best Offset Mortgage here

We have done the hard work and selected some very competitive offset mortgages to suit a range of buyers.

Highest LTV Offset Mortgage by Nat West Bank

 

80% LTV – Term variable offset mortgage from Nat west

Initial rate
3.99% variable for 25 years
Subsequent rate (SVR)

Overall cost for comparison
3.7% APRC
Fees
Application fee No fee
Arrangement fee No fee
Booking fee No fee

Completion fee No fee
Product fee £499 with an option to add to the loan
Other fees may apply

Best Term Variable Offset Mortgage deals

RBS – Best term variable offset mortgage

Maximum LTV
80%
Initial rate
3.99% variable for 25 years
Subsequent rate (SVR)

Overall cost for comparison
3.7% APRC
Fees
Application fee No fee
Arrangement fee No fee
Booking fee No fee

Completion fee No fee
Product fee £499 with an option to add to the loan
Other fees may apply

Lowest initial rate 2 yr fixed rate Offset Mortgage – YBS

Lowest initial rate 2 yr fixed – from YBS

Maximum LTV 75%
Initial rate
1.66% fixed until 30 Sep 2020
Subsequent rate (SVR)
4.99% variable
Overall cost for comparison
4.5% APRC
Fees
Application fee No fee
Arrangement fee No fee
Booking fee No fee
Completion fee £1,495 with an option to add to the loan
Product fee No fee

Best Fixed Rate Offset Mortgage – from YBS

 

YBS best fixed rate offset 2 year term

Maximum LTV
75%
Initial rate
1.66% fixed until 30 Sep 2020
Subsequent rate (SVR)
4.99% variable
Overall cost for comparison
4.5% APRC
Fees
Application fee No fee
Arrangement fee No fee
Booking fee No fee
Completion fee £1,495 with an option to add to the loan
Product fee No fee

Cheapest Overall Cost Offset Mortgage – First Direct tracker offset mortgage

Cheapest Overall Cost Offset Mortgage – First Direct 

Maximum LTV
60%
Initial rate
2.84% base rate tracker for 25 years
Subsequent rate (SVR)

Overall cost for comparison
2.9% APRC
Available via telephone only.
Fees
Application fee No fee
Arrangement fee No fee
Booking fee £490 paid upfront (non-refundable)

Completion fee No fee
Product fee No fee
Other fees may apply

What is an offset mortgage?

Offset mortgages can be a good method of saving money on your mortgage borrowings. They can work in one of two different ways, they can either shorten your mortgage term or reduce the amount you pay monthly in mortgage repayments.

Many people are not aware of offset mortgages and for the homeowner who has a good savings amount and is a frequent saver, they can be a very shrewd alternative.

 How do offset mortgages work?

An offset mortgage allows you to link your savings to your mortgage product which can lead to savings over the mortgage term.

 

How does an offset mortgage actually save me money?

Take for an example if you had £30,000 in savings in addition to your mortgage deposit. The £30,000 is put into your offset account and is used to reduce the amount of interest you pay on your mortgage. This works because your £30,000 in savings is ‘offset’ against the mortgage amount, so you only pay the interest on your mortgage amount minus the savings amount you have in your offset account. In this way the savings are not actually spent on paying the mortgage, but they remain in the account and it saves you interest as long as they are in the account. The reason for this is because essentially the bank still has that capital to invest and can make the savings work to their benefit overall, hence they reduce the amount of interest to be just based off the mortgage loan amount MINUS the offset savings account balance. It is important to know that your offset account savings will earn ZERO interest, because they are being used to offset interest on your mortgage.

 

Can you give me an example of an offset mortgage?

If for example your mortgage amount is £100,000 on 5 year fixed deal at 3% interest rate, and you have £10,000 set aside in your offset mortgage account, you will only have to pay interest on £90,000 of the mortgage amount.  This approach could save you £300 in interest on the mortgage over the year.

As a comparison, if you had instead put the £10,000 into a savings account which paid a whopping 2% interest (a realistic rate at present) you would have merely earned £200 in interest, which if you were taxed on that amount would be further reduced.

Shorter term or lower payment?

With an offset mortgage there are two distinct ways to benefit from the concept.

  • Option 1 is to reduce your mortgage term
  • Option 2 is to reduce your monthly payment but keep the same mortgage term length.

 

Confusion surrounding offset mortgages

If you have heard about offset mortgages, you may have also heard some incorrect facts about them too, for example

Is my money locked away with an offset mortgage account

No, this is incorrect, your money is usually accessible at any time as an offset savings account is just that. A savings account where you can add or remove to your offset mortgage savings balance. If you were to withdraw the funds though, your mortgage payments will rise or your term will increase due to you not actually having any savings against the account anymore.

Will my savings make any difference?

Even a relatively modest savings balance can make a significant difference over the course of your mortgage. If you had a £100,000 mortgage over a 25 year term, having a savings balance of £2500 over the term of the mortgage would reduce your term by 7 months! Now imagine if you could save a bigger balance during the mortgage term, yes, you would pay the mortgage earlier and end up with a nice savings pile at the end of it!

Are interest rates higher on an offset mortgage

Not necessarily, there are a lot of deals to choose from as with other mortgage products, and if you can find one that fits with your savings and borrowing requirements, you can find some great offset mortgage deals.

Can I use more than one account to offset money?

You can have multiple offset accounts but they would need to be with the mortgage lender. For example, if your parent’s setup an offset savings account with you, you could save money on your mortgage with it being linked to their offset savings account.

 

What is ‘offset benefit’

Offset benefit is the term used for the savings your make on your mortgage due to using an offset savings account.

Save more by overpaying

You can save more using an offset mortgage by adding to the offset savings balance. Some offset deals will allow you to make mortgage overpayments on the mortgage too, which will also reduce your mortgage balance, but the crucial difference being is that money will be ‘spent’ and no longer in your offset account, so you won’t have access to it again should you need it. (unless you remortgage for example )

Offset mortgage to help your kids buy a house

An offset mortgage offers parents a good alternative to being a mortgage guarantor or gifting children money to help them buy a new home.

Some offset products allow family to user their own savings balances to offset against another family members mortgage. This clearly benefits your children or the mortgage applicant as it will reduce their mortgage payment or mortgage term.

It also means that as a parent or relative you retain full control of your money, and it is not actually ‘spent’ but merely in a savings account helping to reduce your son or daughters mortgage.

Once your child has a firm footing and some equity in the property, you may agree to transfer your savings to a proper interest paying savings account (because you will not earn any interest on the amount when its in an offset savings account, meaning that over a long period your money will deflate when compared to inflation)

Offset mortgage calculator

 Use this handy offset mortgage calculator to find out how much you could save on an offset mortgage.

You can find more information to inform your decision on an offset mortgage here

What are the Pros and Cons of Offset Mortgages?

Offset mortgages can offer some excellent savings in mortgage interest amount, but they do have some drawbacks you should be aware of.

Pros of an offset mortgage

You can save more in interest off your mortgage than you would make with the money in a savings account.

You do not have to pay tax on the savings your make off the mortgage interest but you may be liable for tax on interest that is made from a savings account.

You still have easy access to your savings in the event that you need to withdraw some. You need to be aware that your mortgage payment will go up if you do so and this is not the best way to manage an offset account as the deals are different to those for a normal mortgage so you could end up paying more with an empty offset account.

You can help a relative or your children buy a property without actually having to spend your hard earned savings.

You can pay off your mortgage faster or alternatively reduce the amount you pay for the monthly payment.

 

Cons of an Offset Mortgage

Your savings will not earn interest when in an offset mortgage account as they are being offset against your mortgage interest. As a result if you are reliant on savings interest for income, this option will not work well for you.

Your savings will not increase inline with inflation as it is a zero interest account, effectively meaning your lump sum will dwindle relative to an interest bearing account.

If you do not manage the offset mortgage account well and maintain a minimum amount of savings in the account (at least the amount the mortgage was calculated from) then you will end up paying more interest as fixed rate mortgage deals (non offset mortgages) are often a slightly better rate when no offset savings are factored in (which you would not be getting if you had a zero balance in your offset savings account)

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