What is an Offset Mortgage?
An offset mortgage links your savings account to your mortgage. The balance in your savings account is used to “offset” the amount you owe on your mortgage, reducing the interest you pay. For example, if you have a £200,000 mortgage and £50,000 in your offset account, you’ll only pay interest on £150,000.
How to Use the Offset Mortgage Calculator
- Enter your initial mortgage amount
- Input the interest rate
- Specify the loan term
- Add the current balance in your offset account
- Include any regular monthly deposits to your offset account
The calculator will then show you:
- Total interest saved over the loan term
- Reduction in loan term (if you maintain regular payments)
- New monthly payments (if you choose to reduce them)
Benefits of an Offset Mortgage
- Lower Interest Payments: You only pay interest on the difference between your mortgage balance and savings.
- Flexibility: Access your savings anytime without penalty.
- Potential Tax Advantages: Instead of earning taxable interest on savings, you save on mortgage interest.
- Faster Repayment: Maintain regular payments to pay off your mortgage earlier.
How the Calculation Works
The calculator uses the following formula to determine your savings:
Interest Saved = (Mortgage Balance - Offset Balance) * Interest Rate
It then computes the cumulative effect over the loan term, accounting for regular deposits to your offset account.
Maximizing Your Offset Mortgage
To get the most out of your offset mortgage:
- Keep as much money as possible in your offset account
- Consider directing your salary into the offset account
- Use credit cards for monthly expenses, paying the balance in full from the offset account
Offset Mortgage vs. Traditional Mortgage
| Feature | Offset Mortgage | Traditional Mortgage |
|---|---|---|
| Interest Calculation | On reduced balance | On full loan amount |
| Access to Savings | Maintained | Separate accounts |
| Flexibility | High | Lower |
| Potential Savings | Higher | Lower |
Frequently Asked Questions
Q: Can I lose my savings with an offset mortgage?
A: No, your savings remain separate and accessible, they’re just used to calculate interest.
Q: Is an offset mortgage right for everyone?
A: It’s most beneficial for those with significant savings or irregular income patterns.
Q: Can I still make overpayments?
A: Yes, most offset mortgages allow overpayments, potentially reducing your term further.
Q: What happens if I withdraw from my offset account?
A: Your interest savings will reduce, but you maintain the flexibility to access your funds.
Q: Are offset mortgages more expensive?
A: They can have slightly higher interest rates, but the potential savings often outweigh this.
Ready to see how much you could save with an offset mortgage? Use our calculator now to get a clear picture of your potential savings and make an informed decision about your home loan strategy. Don’t leave money on the table – optimize your mortgage today!