Compare the Best Offset Mortgage Rates in the UK
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What is an offset mortgage?
With this type of mortgage you can ‘offset’ your savings to reduce the overall interest that you owe. You simply create a separate account or a little ‘side pot’ and you can put money into this account as you wish. As you put funds into the account, the interest on your mortgage is calculated and it reduces accordingly. So if you top up the account, the interest is less but then as you withdraw money, the interest increases. Ideally, the more money you put into your deposit allows you to lower the cost of your mortgage. It is completely tax-free to put your savings in an offset account and you can access the funds whenever you like free of charge.
Offset mortgage payment example
If you have a mortgage for £150,000 but you have £30,000 in savings, an offset mortgage would allow you to only pay interest on £120,000. So this repayment option would reduce the overall cost of your mortgage and allow you to be the full owner of property much sooner.
Offset mortgage – the main advantages
With an offset mortgage, you are able to overpay on your loan without limits or charges. Typical mortgages only allow you to repay up to 10% of your loan each year and there may be a fee for doing so. However, an offset account allows you to continuously add savings to the pot and overpay your mortgage without penalties.
As mentioned, an offset account allows you access to the funds whenever you want them. So if you find that you have disposable income, you can add this to the pot. But if you find that you need some extra money for an emergency expense, you are able to withdraw at any point knowing that your money is not locked away.
A disadvantage of this mortgage product is that the rates are typically more expensive than your standard mortgage. It also relies on the homeowner having a lot of savings at their disposal in order to make the most of it. If the individual does not have savings that they can constantly top up, they will find themselves paying a higher interest rate and unable to reap the benefits of the offset mortgage.
Ways to reduce the offset mortgage rate includes having a very good credit rating. By showing a good history of repaying loans and credit on time, the lender believes that you are a low risk of defaulting. Also putting down a large deposit on the property will allow you to access a better interest rate. The more you can deposit means that you will require a lower loan-to-value (LTV) and you will own a greater share of the property compared to the lender.
Is an offset mortgage right for me?
An offset mortgage could be the right mortgage for you if you have a lot of savings available and would prefer to put these towards your mortgage rather than a low return savings account. You are required to pay tax on a savings account but this is not the case with an offset mortgage. Over a long term mortgage such as 25 years, you can make huge savings on tax because instead you will be putting your savings towards your property, which will probably generate a better return than any savings account. You can use this offset mortgage calculator to see whether this type of mortgage would be right for you based on your current financial position.
In addition, this type of mortgage can be suitable for those struggling to make their mortgage repayments. This is because family members are able to contribute to the offset account in order to help reduce the overall cost of the loan. The savings are still kept in the relative’s name and are still accessible at any point. This can significantly reduce the burden on the homeowner and avoid their account going into arrears and the risk of their property being repossessed.
How is an offset mortgage different to a current account mortgage?
A current account mortgage, also known as CAM, puts both your debts and your savings into a single account whereas an offset mortgage is linked to a separate bank account. The two are very similar and both allow the homeowner to reduce interest payments on their mortgage.
Compare offset mortgage rates at Quiddi Compare
You can compare the best offset mortgage rates on our website. Simply fill in your details above and someone from our support team will get in touch with you immediately to discuss your mortgage. We work with some of the leading mortgage providers in the UK and our team is constantly looking out for new deals so our customers can save money. We will compare the different offers based on your circumstances and if successful, we will be able to put you in touch directly with the mortgage provider. We do not charge any fees for our service or pass on your details to any random third party companies. We simply take a small fee from the mortgage company to ensure that what we offer is free for our customers.
The advertised rate is 1.95%. However this rate will not be available to everyone and will depend on your individual circumstances and the loan to value ratio of your mortgage. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. Some partners may charge you a fee for helping you find a Mortgage or Secured Loan or other services they provide. MAKE SURE you check with the company before agreeing to any service if they charge you a fee and what the terms are. Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk QuiddiCompare does not charge a fee and does not provide any financial advice relating to mortgages. However we may on occasion receive commissions from IFA’s and mortgage providers, brokers and intermediaries for introducing you to them. The content of this site is meant to be informational, and it should not be considered financial advice. – See more at: quiddicompare.co.uk/mortgages.