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Benefits of an offset mortgage
An offset mortgage can provide many benefits. This is especially true if you have a large sum of money in your savings and continue to add to it.
You’ll enjoy lower monthly repayments
Lower interest on a lower mortgage balance = more money in your pocket.
You could reduce your mortgage term
Some lenders let you use the interest you’ve saved to pay off more of your mortgage balance, which could shorten your term.
Lower the amount of tax you pay
With an offset mortgage, you won’t have to pay tax on the interest you save.
You can still access your savings
You’ll still have access to your savings if you need them. But any changes to your savings will affect your offset mortgage balance, and your monthly payments could go up.
Things to consider
As with any mortgage, there are still things to weigh up before you apply for an offset mortgage.
Offset mortgage rates might be higher
The rates for offset mortgages may be higher than those for other mortgages. Plus, if you need to use your savings, your monthly payments might go up.
You won’t earn interest on your savings
While your savings can help reduce the interest you pay on your mortgage, you won’t see the benefits of any potential savings interest rate changes.
It won’t improve your loan-to-value (LTV) ratio
If you put the money from your savings directly into your property, rather than using it for an offset mortgage, you could reduce your loan-to-value ratio. This could give you access to better mortgage deals.
Less flexibility
Offset mortgages are usually only available when the mortgage and savings account are with the same lender, so you have less flexibility over who you save with.
Let’s look at the details
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Each option has its own benefits. A bigger deposit lowers your loan-to-value ratio, which could get you a better mortgage deal. An offset mortgage lets you keep access to your savings while lowering the amount you pay interest on. Use a mortgage calculator to weigh up your options and see how much your monthly repayments could be with a bigger deposit.
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Offsetting your mortgage reduces the amount of interest you pay based on your savings, while overpaying means paying more on your mortgage, which could reduce your overall term.
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You can usually access your savings with an offset mortgage – but it’s best to double-check with your mortgage provider. If you take money out of your savings account, you'll reduce the amount that offsets your mortgage balance. This means your interest would increase and your monthly repayments could rise.
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