How does an Offset mortgage with us work?
When you take out a repayment mortgage, you gradually pay off the amount you borrowed (the capital) together with the interest, over the term of your mortgage. Our Offset mortgage is a repayment mortgage that links your Offset savings account to your Offset mortgage to reduce the amount of mortgage interest you’re charged.
You still make your monthly capital repayment, but we only charge you interest on the difference between your mortgage and your savings balance.
We call this the ‘Offset benefit’ and you can use it to either reduce the overall term of your mortgage or reduce your monthly payment.
Here's how it works:
Your mortgage = £100,000
You always pay capital repayments on this amount
Your savings = £20,000
We only charge you interest on
The difference between your savings balance and the outstanding balance on your mortgage.
The money in your Offset savings account won’t be earning interest because it’s offsetting the interest payable on your mortgage. This means there’s no income tax liability.
You’ll always have to make monthly capital repayments on the outstanding mortgage balance.
You can use your Offset benefit to either:
- reduce the overall term of your mortgage (ie: the number of years and months over which you pay it back), or
- reduce your monthly mortgage payment
Either way, you save money
If you choose to reduce the overall term of your mortgage…
You continue to make the full contractual monthly mortgage payment each month. This is the amount agreed when you took out the mortgage.
Any Offset benefit immediately reduces the outstanding capital balance. This in turn reduces the amount of mortgage interest you pay overall, and therefore shortens the time it takes to pay off the mortgage. The amount saved and therefore the actual difference to your mortgage term and overall cost, varies depending on the amount of money you put into your savings account.
Under this option, your monthly mortgage payments are only recalculated following a significant change to your mortgage, for example, as a result of a rate change.
If you choose to reduce the monthly payment…
At the end of each month, the Offset benefit automatically reduces the amount we collect by Direct Debit for the next monthly mortgage payment (or the month after that, depending on when the payment is due) by the same amount.
This means that although you still pay your mortgage for the whole of the original term, depending on how much money you have in your Offset savings account, you pay less mortgage interest each month. However, if there’s an increase in the interest rate payable on your mortgage this may result in your monthly payment increasing.
Payments made before the 7th of the month may result in the Offset benefit reducing your monthly payment a month later.
If you choose this option, you must pay by Direct Debit.
We keep our Offset mortgages simple:
- One savings account – keep your savings in one, easy to manage account linked to your mortgage
- Easy access to your savings – using Online Services, telephone banking, Direct Debit, standing order or a cash machine
- Further borrowing at the same rate – you can apply to borrow more at the same rate as your existing mortgage, subject to eligibility, the maximum Loan to Value of your mortgage and our lending policy.
Your Offset savings account
We’ll open your Offset savings account as soon as your mortgage has completed.
You can add to it whenever you like – more money in your savings account means less interest to pay on your mortgage loan. And you can take money out of your Offset savings account whenever you like too.
There’s no minimum amount required, so you don’t have to save regularly.
When we open your Offset savings account, we won’t automatically transfer any Direct Debits, standing orders or funds into it from any other savings account you may have with us. You’ll need to do this yourself.
You can find all the information you need about how to use your account in the booklet we send you when we open the savings account for you. If you have any questions, call us on 0800 121 8899 or ask us at any branch.
If you have more money in your Offset savings account than you have on your Offset mortgage
You won’t receive any Offset benefit on the excess amount so you may wish to move some of your savings into an account that pays you interest.
Also, if you have the same amount in your Offset savings account as the amount you owe on your mortgage, you still need to make a capital repayment every month.
If you have no money in your Offset savings account
You won’t receive any Offset benefit. If this is the case, you may want to review your situation to make sure an Offset mortgage is still right for you.
You can make overpayments on your Offset mortgage (subject to the product's specific terms and conditions), but remember, after you’ve made an overpayment into your mortgage account, you won’t be able to access that money.
If you think you might need the money in future, you can save it in your Offset savings account instead. That way, you’ll receive a greater Offset benefit and have access to the money whenever you need it.
There are different ways to make overpayments – small ad hoc overpayments, larger lump sum overpayments and regular overpayments.
To talk to us about making overpayments, call us on 0800 121 8899.
Your Offset savings account doesn’t count towards your Personal Savings Allowance
We don’t pay you interest on these savings so there’s nothing to count towards your allowance. For more about this, go to www.gov.uk and type ‘tax on savings interest’ in the search box.
If you move home and transfer your Offset mortgage
If you apply to transfer ('port') your Offset mortgage to another property, we’ll set up a new Offset mortgage and savings account for you when the purchase is complete.
What you’ll need to do:
- Let us know whether to cancel or transfer any existing standing orders and Direct Debits. We can’t do this without your permission.
- Transfer any money into the new Offset savings account. We can't do this automatically for you.
When your mortgage has been repaid, transferred to another property, or transferred to a non-Offset mortgage, we transfer your original Offset savings account into an instant access account.
Your advisor will be able to take your individual circumstances into account and give you detailed information about your specific Offset benefit options and how they would affect your mortgage term or payments. All of the information given is subject to our lending criteria and the specific terms and conditions of your mortgage.
Is an Offset mortgage right for you?
If you have some savings and you like the idea of paying your mortgage off early or paying less each month, an Offset mortgage could be right for you.
Talk to us on 0800 121 8899.