An offset mortgage is a type of mortgage product that allows you to connect your savings with your mortgage account. By doing so, the money you have in these linked accounts helps to offset the outstanding balance on your mortgage, which can lead to reduced interest charges.
How does an offset mortgage work?
Interested to learn more about how an offset mortgage works? Keep reading for more information about the different types of offset mortgages.
Mortgage account
When taking out an offset mortgage, you will have a mortgage account; which is typically identical to that of a standard residential mortgage. Each month, you make payments towards the mortgage loan amount, including interest on the net balance between this mortgage account and the offset savings account that is linked.
Offset savings account
In addition to your mortgage account, you’ll need to have a savings or current account with the same bank or lender. This may already be existing with this lender, or they may require you to move your savings into an account with them. This account is then connected to your mortgage account, and the balances are taken into consideration.
Interest savings
The interest you owe on your mortgage is calculated based on the difference between the outstanding mortgage balance and the balance in your offset savings account. In essence, you pay interest on the reduced amount.
Reduced interest payments
By linking your savings to your mortgage, you’ll effectively lower the interest charged on the loan. This solution can help you pay off your mortgage in a shorter amount of time or can reduce the total interest you’ll pay over the loan term.
Access to funds
Although your savings are used to offset your mortgage balance, you’ll still have access to your savings should you need it. With access to funds, you can deposit or withdraw funds from the linked accounts as needed, providing you with greater flexibility.
Like all mortgages, the products vary from one lender to the next. Each lender will have specific terms and conditions that apply to their offset mortgage products. Speaking to an expert mortgage adviser LDN Finance will help you better understand the features and benefits of each product.
If you’re keen to see an offset mortgage in action, view our recent case study that explains how Darren Johncock, mortgage adviser, was able to use a client savings account to offset the total mortgage loan amount, therefore resulting in the client only paying the interest to the lender that was accruing on the loan.
Would you like to discuss your offset mortgage options? Call LDN Finance on 020 3903 9875, or contact us via our online form.