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Having an offset mortgage can help you pay off your home loan quickly and cheaply. Offsets are very flexible, help you keep tax away from your savings and are easy to use. They’re not right for everyone but people who have them love them! Here’s the Moneymagpie guide to offset mortgages – what they are and how you can get one.

• What is an offset mortgage?
• How do you get one?
• What are the best deals?
• Go to our mortgage comparison service for the best offset for you

What is an offset mortgage?

Offsets are the most flexible of flexible mortgages. You can overpay, underpay, borrow back money you have paid in and massively cut down on the amount of interest you pay by ‘offsetting’ any money you have in your savings and current account against your home loan.

The way they work is that the bundle up your mortgage with your savings accounts and your current account. Any money you have in the ‘plus’ side (that’s in your savings and current accounts) are offset against your mortgage. So then the interest you are charged is calculated only on what is left.

So, for example, let’s say you have a £100,000 offset mortgage and you have £20,000 in your savings and £1,500 in your current account. When the mortgage company come to calculate how much interest you should pay on your mortgage they take away £21,500 from your loan and only charge you interest on £78,500. So you can see that the more you have in savings, the less interest you will pay overall.

You can have lots of different savings ‘pots’ in this account too which will help if you are saving for specific things as well as wanting to pay off your mortgage.

When it comes to paying your mortgage each week, it works like any other mortgage: you have a set amount you have to pay in and there are problems if you don’t pay it! However, the great thing is that even though you pay the same amount each month, if you have savings offset against the loan, more of the money you pay in goes into paying off the capital (the actual money you borrowed in the first place) rather than being wasted on interest.

Otherwise, offset mortgages are like other mortgages: you can get repayment ones, interest-only, trackers (traditionally the majority of offsets have been trackers), fixed rates and so on. Which one you go for depends on your situation and what you think interest rates are going to do in the next few years. Find out which is the best one for you in our mortgage comparison service.

Who are they good for?

Offset mortgages are best for:

• People who have a decent amount of money in savings that they could ‘offset’ against their mortgage. Ideally, if you have 20% or more of the value of your mortgage in savings that will make the most of this type of loan.
• People who get bonuses or commissions from work that could add a nice lot of money against the mortgage fairly regularly
• Couples who both work and will both pay their salary into the account so that more money each month is offset
• Those with family members who are willing to leave their savings ‘resting’ in their offset account
• Freelancers and self-employed people who like to have access to a cheap overdraft regularly.

One really good reason for having an offset mortgage right now is that you can effectively get better rates on your savings. While savings rates are low at the moment (you can find the best savings rates here), with an offset mortgage your savings will get a much better return. If your mortgage is, say, 4.5% then your savings will, in effect, make 4.5% net because that is what you will save on your mortgage and you don’t get charged tax when you are paying off a debt rather than accumulating savings interest.

This is not only good news for you, but if you have family members who would like to help you, they can do so at no real cost to themselves (other than loss of a bit of interest) by putting some of their savings into one of your offset savings ‘pots’. This extra money will help you pay off your mortgage more cheaply and they can take the money back when they like. It means they are able to give you tax-free help without actually losing their money.

Who are they not right for?

Offset mortgages can be a dangerous tool in the wrong hands. They’re so flexible that you could find you never pay yours off. As you pay off your mortgage you can borrow the money back again which can be handy if you have an erratic income and need to have an easy, cheap overdraft (that’s one way you can use it) but you have to be disciplined enough to go back to paying off all the capital as soon as possible.

Offsets are also not right for you if:

• You have little or no savings to offset against your mortgage (you may be better off getting a very cheap, basic fixed deal)
• You don’t have a partner or other family members who can put extra money in your savings pot
• You are a first-time buyer with big expenses
• You like traditional financial products

How do you get an offset mortgage?

It’s really very simple. Just go to our mortgage comparison service and speak to the excellent mortgage advisers at London & Country.

All you need to do is give them details of your earnings and what money you have as a deposit. Let them know that you’re interested in an offset mortgage and they will go through the best value loans in that sector.

The best offset mortgage deals now

Check our comparison pages for the best offset deals around at the moment. If you scroll down the page you will see the best-buy tables including best-buy offset mortgages.

According to  London & Country mortgages, right now some of the best deals come from First Direct. There’s a good 2-year fixed deal at 3.49%. This is an interest-only mortgage but that means very little with an offset as you can pay off as much of the capital as you like while paying just the interest.

If you prefer a tracker, again First Direct does a lifetime tracker at 2.39% over Base Rate. That’s about the best rate you will get with trackers right now.

The important thing for you, though, is to get in touch with London & Country now to talk through these and other possible options to give you the cheapest and easiest mortgage on the market.

You can get an idea of the interest you’d pay through various deals by using our mortgage calculator below:

The Moneymagpie.com Mortgage Calculator

Useful links

• Moneymagpie mortgage comparison service powered by London & Country