The Benefits of an Offset Mortgage

The main advantage of an offset mortgage is that your high-value mortgage account is linked to one or more of your savings accounts. Any cash available in your savings accounts is then “offset” by the interest on your mortgage debt. For example, if you had a mortgage offset of £1,000,000 but you also had £100,000 in one or more of your savings accounts, you would only be required to pay interest on the difference between the amount of the debt and the amount of the savings, i.e. only on £900,000 in this particular example.

However, since your monthly mortgage payments are based on a loan of £1,000,000, you overpay each month. And you retain access to your cash savings if you need to use them at any time, although any reduction in the amount of savings held in the savings accounts will of course affect the monthly overpayment of your mortgage.

Since the offset mortgage was reintroduced to the UK mortgage market in 2002, we have seen benefits such as the option to overpay, reduce overpayments, and use savings to reduce interest costs, which is particularly attractive to many wealthy people who tend to have more complex financial arrangements and are more likely to have a range of accounts with substantial cash holdings. Clydesdale Bank has expanded its offer to a “buy to rent” offset mortgage, which is great news for many homeowners. For mortgages between £100k and £500k, they currently charge a variable rate plus a one-off fixed arrangement fee. There is a restriction of a maximum of 80 per cent loan to value of repayment loans and 70 per cent loan to value of interest-only loans. Up to six current and savings accounts can be offset by a single loan amount.

With this special offer from Clydesdale Bank, a borrower can benefit from faster repayments because a larger portion of the mortgage payments will be used to offset the principal if the savings are offset by the loan. The borrower will also retain access to their savings, unlike a traditional mortgage where it can often be difficult to access or “re-borrow” the savings. A borrower will essentially reduce his or her outstanding debt, because with savings offset by mortgage debt, there can potentially be much less interest payable, depending on the level of savings held in a month.

A mortgage-compensated purchase to rent can offer great flexibility to high-value mortgage borrowers or, indeed, to anyone with a large amount of savings, especially for those who are looking to make the most of cash savings while still having access to them when needed . Although the current Clydesdale Bank arrangement is not the most competitive interest rate currently available in the UK mortgage market, an offset arrangement such as this could certainly be a very attractive proposition for some high-value mortgage borrowers.