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If you're looking to save money on your mortgage and have a reasonable balance in your savings account, then an offset mortgage could be for you. An offset mortgage is a type of variable rate mortgage where your savings are used to offset your mortgage balance, reducing the interest you pay on your mortgage.
The main benefit of an offset mortgage is that you can save money on the interest you pay on your mortgage, as the interest is calculated on your mortgage balance minus your savings balance. This can help you to repay your mortgage quicker, as well as save you money in the long run.
Another benefit of an offset mortgage is that you have access to your savings if you need them, rather than having them tied up in your mortgage. This can be useful if you need to make a large purchase or have an unexpected expense.
At Echo Finance, we're a whole of market broker which means we can compare offset mortgages from a range of lenders to find the best deal for you. We're also happy to discuss your options with you and answer any questions you have about offset mortgages. Contact us today to find out more.
What is an offset mortgage?
An offset mortgage is a type of mortgage where your savings account balance is used to offset your mortgage balance. This means that you only pay interest on the amount of your mortgage minus your savings. For example, if you have a £100,000 mortgage and £20,000 in savings, you would only pay interest on £80,000.
Offset mortgages can help you to pay off your mortgage faster as you are effectively paying down your mortgage with your savings. They can also save you money in interest as you are only paying interest on a smaller mortgage balance.
If you are looking for a way to reduce the amount of interest you pay on your mortgage, an offset mortgage deal could be a good option for you.
How do offset mortgages work?
An offset mortgage works by using your savings to offset your mortgage balance. This means that you only pay interest on the amount of your mortgage minus your savings.
For example, if you have a £200,000 mortgage and £30,000 in savings, you would only pay interest on £170,000. This can save you money on your mortgage payments as you are effectively paying down your mortgage with your savings. If you withdraw your savings, your monthly payments will increase as you will be paying interest on a higher mortgage amount.
Offset mortgage deals are typically variable rate mortgages, which means that your interest rate can go up or down depending on the market.
What are the benefits of an offset mortgage?
There are several benefits of offset mortgages, including:
Reduced interest payments – as you are only paying interest on a smaller mortgage balance, you can save money on your monthly payments.
Pay off your mortgage faster – by using your savings to offset your mortgage balance, you can pay down your mortgage quicker.
Access to your savings – unlike with a standard mortgage, you have access to your savings if you need them. This can be useful in an emergency or if you need to make a large purchase.
What are the disadvantages of an offset mortgage?
There are a few disadvantages of offset mortgages to be aware of, including:
Higher mortgage rates – as offset mortgages are a type of variable rate mortgage, the interest rate you pay may be higher than with a fixed rate mortgage.
Your savings won't earn interest – as your savings are used to offset your mortgage balance, they won't earn interest.
You may need a large savings balance – to make an offset mortgage worth it, you will need a good sized savings balance. This may not be possible for everyone.
Your savings must be in the same currency as your mortgage – if your savings are in a different currency to your mortgage, they won't be able to offset your mortgage balance.
Offset mortgages can be a great way to reduce the amount of interest you pay on your mortgage and pay it off faster. However, they may not be suitable for everyone. Contact us today to find out if an offset mortgage is right for you.
How much savings do you need for an offset mortgage?
The amount of savings you need for an offset mortgage will depend on the size of your mortgage. As a general rule, you can expect to need 20-25% of your mortgage amount in savings to be considered.
For example, if you have a £100,000 mortgage, you would need £20,000-£25,000 in your savings account to offset your mortgage. However, this is just a general guide and the amount you need may be more or less depending on your individual circumstances.
If you are considering an offset mortgage, contact us today and we can help you to calculate how much savings you will need.
Who is an offset mortgage suitable for?
Offset mortgages can be a good option for people who have a reasonable savings balance and who are looking for a way to reduce the amount of interest they pay on their mortgage, whilst having access to their savings if they need them.
Here are a few things to consider if you are thinking of taking out an offset mortgage:
- Do you have a reasonably sized savings balance?
- Are you comfortable with the idea of your savings being used to offset your mortgage balance?
- Do you need access to your savings in case of an emergency?
- Are you happy with a variable interest rate on your mortgage?
If you are thinking of taking out an offset mortgage, contact us today and we can help you to find the right deal for you.
Can you offset 100% of your mortgage?
Yes, depending on the situation, you can theoretically offset 100% of your mortgage if you have the same amount in savings.
For example, if you have a £100,000 mortgage and £100,000 in your savings account, your entire mortgage would be offset. This means that you would only pay interest on the amount of your mortgage minus your savings (in this case, zero). That being said, your savings will not accrue interest while they are being used to offset your mortgage.
However, it is important to remember that your monthly repayments will go up if you withdraw your savings, as you will be paying interest on a higher mortgage amount.
If you are considering an offset mortgage and would like to offset 100% of your mortgage, contact us today and we can help you to calculate how much savings you will need.
Speak to an expert
At Echo Finance, we've helped countless people to find the right mortgage for their needs. If you're not sure whether an offset mortgage is right for you, our team of experts can help. Knowing where to go for mortgage advice is crucial.
Get in touch with us today and we can help you to find the right mortgage for your needs, whether it's an offset mortgage or something else. We'll also give you access to deals from across the entire market, so you can be sure you're getting the best deal possible. Contact us today to get started.
Find your local adviser
Frequently Asked Questions
Below you will find the answers to the questions we hear most often from Echo Finance customers:
A mortgage broker, or a mortgage advisor, is an intermediary who acts as a conduit between an aspiring borrower and a lender. It is their job to provide the mortgage applicant with impartial advice, help them choose the right product and arrange the deal with the lender.
Brokers provide services including advice on which type of mortgage to choose, providing access to exclusive rates through their lender contacts, and application support. Some can offer advice on all areas of the mortgage market, while others specialise in niche fields such as buy-to-let, bad credit, commercial finance, first-time buyers or self-employed borrowers.
People choose to apply for their mortgage through a broker because it can boost their chances of finding the right deal, while saving time and money in the long run.
- Residential mortgages: Everything from fixed-rate to tracker mortgages for first-time buyers, homemovers and remortgage borrowers
- Specialist mortgages: For borrowers who fall outside of standard lending criteria, including people with bad credit, self-employed professionals and more
- Later-life lending: Including advice on equity release, mortgages for pensioners and retirement interest only (RIO) mortgages
- Bridging & Commercial: We have specialist advisors on hand for commercial mortgages, bridging loans, development finance and more
- Insurance & Protection: Including life, home and critical illness cover for families and individuals, as well as landlord and business protection insurance
Echo Finance is regulated by the Financial Conduct Authority and is reviewed annually by an independent compliance company. All of our brokers and advisers hold industry-standard qualifications, such as CeMAP, CeRER and DipMap, where required.
We are committed to providing advice through the channels that best suit your needs. Our brokers can provide advice via phone, email, video and web chat from anywhere in the UK, but we also aim to offer face-to-face appointments for those who request them.
