Offset example illustrations
The beauty of an offset mortgage is that it's designed to fit in with your financial plans. The following examples are illustrations to show you different ways in which different people could use their offset mortgages to help them make the most of their savings and achieve their goals.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Julia, a 55 year old manager
Julia's children have all grown up and left home so her monthly expenditure has dropped. She’d like to retire as early as possible and that means paying off the mortgage sooner. But she still wants to save for a holiday next year and make some house renovations in two years' time. She has £30,000 in savings that isn't earning much.
Julia sets up three different savings accounts: one for her holiday, one for house renovations and one for her £30,000 pot. She arranges standing orders from her current account so that £300 a month goes into her holiday account and £100 per month into the renovations account but no further contributions to the £30,000 pot. She then links them all to her Offset Mortgage. She doesn’t earn interest on these savings but they do reduce the term of her mortgage so it will be paid off earlier.
Her Offset Mortgage rate is 3.49%. She has a mortgage balance of £50,000. Over ten years, this level of saving offset against the mortgage balance reduces her interest payments by £1,687.58, shortening the mortgage term by one year and five months but retaining her savings.
If she decides to use her savings to clear her mortgage, she can do that after just two years – eight years earlier.
Want to pay off your mortgage earlier? Find out how much you could save - try our Offset Mortgage Calculator
Tim and Tricia, a young couple with two children
Tim and Tricia are in their late thirties and have two young children. They have a mortgage of £630,000 on a property worth £990,000. They are currently putting £600 aside for when their children to go to university in ten years time, but they also want to reduce their monthly outgoings.
They start putting the £600 per month into a savings account linked to their Offset Mortgage and they choose to take the offset benefits as reduced monthly mortgage repayments.
Their mortgage interest rate is 3.49% over 10 years. Their £600 a month savings reduce their interest payments by an average of £100 a month. This means that Tim and Tricia have paid £11,684.67 less in interest payments when they come to pay for their children’s education in ten years’ time. This is £2,710.36 more than they would have earned had they placed their savings in a savings account - paying 2.5%, as well as saving them £3,589.72 that would have been paid in tax on interest earned on a standard savings account. Their £600 per month savings have built up to £72,000.
Could your savings work like Tim and Tricia's? Find out how much you could save - try our Offset Mortgage Calculator