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Use an offset mortgage to reduce your monthly payments
Combining your mortgage and savings accounts could help you reduce your monthly repayments or pay off your mortgage sooner.
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What is an offset mortgage?
An offset mortgage is a type of mortgage loan that is linked to one of your savings accounts. Instead of the savings being used to pay off your mortgage loan, they are used to “offset” your mortgage loan. This is a tactic used to reduce the amount of interest you pay on your mortgage, but is not always the best option for everyone.
Offset mortgages work by “offsetting” the amount of money you owe your lender on your mortgage loan against what you have in a savings account. Your lender “takes away” the amount of money you have in savings from the amount you owe on your mortgage. Then, you only pay interest on the amount that’s left.
For example, let’s say you have a mortgage of £200,000, and have £30,000 in savings. With an offset mortgage, you would only pay interest on £170,000 of the mortgage, instead of the full £200,000. If you had an interest rate of 4%, that would mean paying £897 per month, £159 less than if you were on a standard repayment mortgage with the same rate, based on a 25 year term.
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