How do they work?
An offset mortgage or current account mortgage works in a similar way. You will need to have the mortgage and any money you want to offset held with the same provider, and the money will normally need to be in a specific offset account.
For example if you have a £100000 mortgage and a savings balance of £30000 then you are only charged interest on the difference, so £70000. If you add to or withdraw from the savings account then the interest charged will adjust accordingly.
As you are only being charged interest on a lower amount most lenders will offer 2 options. You can either keep the payments the same which will reduce the overall term of the mortgage, or reduce your monthly payments. Some offset mortgage providers will allow you to change this as many times as you like, others will ask you to choose at the start.
It’s worth noting that as your savings will be used to offset your mortgage interest you do not normally earn any interest on the balances.
Offset mortgages can be a good way to save money in the long run, and are available as both fixed rate offset mortgages and variable rate offset mortgages. However due to the added flexibility offered by these schemes they can sometimes charge higher rates when compared to standard mortgage products.
Whether an offset mortgage is beneficial for you is very much dependant on your circumstances. To find out if it would be a suitable option contact one of our advisers for a fee-free assessment.
