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Advantages and Disadvantages of Offset Mortgages

What are the pros and cons of offset mortgages? Get the right advice here.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 10, 2022

Most people associate mortgages with a standard repayment plan, however, there are a number of alternatives you may want to consider, one of which is an offset mortgage.

What are the advantages of offset mortgages?

Historically, offset mortgages have been more popular for buyers with large, stable savings, because offset interest rates tend to be higher. So if you have a very large savings pot, this can often be counteracted by the interest saved by offsetting.

However, more and more lenders are now offering offset mortgages, meaning more competitive rates are available. Here are some of the other potential pros:

  • An opportunity to reduce the amount of interest you pay.
  • You may be able to repay your mortgage quicker than with a standard plan.
  • You can have retained access to your offset savings account if necessary.
  • Some lenders allow you to offset both ISAs and current accounts as well as savings against your mortgage.
  • There may be tax advantages.

What are the disadvantages of offset mortgage accounts?

Offset mortgages are not the most cost-effective solution for everyone, which is why it’s important to speak with a whole-of-market broker to ensure you get the right mortgage for your needs and circumstances.

Contact us and one of the specialists we work with will be in touch to determine whether an offset mortgage is right for you. Some disadvantages, which may or may not apply to your situation, include:

  • A fair number of providers request a loan to value (LTV) ratio of at least 75% before considering you for an offset mortgage. This means a deposit of 25% or more could be required.
  • Interest rates on offset mortgages can be higher than on a standard repayment plan.
  • Not all lenders offer offset mortgages, so choice may be more limited.
    Due to limited lender choice, you may be offered less competitive rates.
  • It could be more financially beneficial to use cash savings towards a deposit.
  • Monthly repayments and/or interest rates may increase if you make a withdrawal from an offset savings account.
  • The linked savings account and mortgage usually have to be with the same provider.
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Offset or repayment mortgages?

An offset mortgage is a product that allows you to use savings to offset the amount of mortgage interest you’re charged. So, instead of earning interest on your savings, you save paying interest on part of the debt you still need to repay.

No money is offset with a standard repayment mortgage, meaning that you make monthly repayments to cover the capital borrowed as well as the full interest it accrues. The amount borrowed decreases during the term, and when it ends the loan is paid off.

The offset mortgage pros and cons section above should give you an idea of whether an offset mortgage or a traditional repayment mortgage is the best fit for you, but if you’re having trouble deciding, get in touch and we’ll refer you to an expert who can help.

Other options to consider

If you’re saving with a substantial pot of cash on your side, offsetting this capital against your mortgage may not be the only way you can make it work for you.

The advisors we work with are experts in this field and can discuss all of the available options with you, before recommending the right lender to you.

You might want to discuss the following with them…

  • Offset mortgage vs shares
  • Offset mortgage vs other investment opportunities

Make an enquiry and the advisors we work with will go over all of your mortgage and investment options with you.

Other factors to consider with offset mortgages

Offset mortgage and overpayments

Many people opt for offset mortgages because the amount you pay each month will usually be based on the full mortgage value, including the savings amount. This means that you’re effectively overpaying each month, so therefore you’ll theoretically end up paying it off quicker.

However, some lenders will not take the offset savings into consideration when calculating your monthly payments. If this is the case, you won’t end up paying off the mortgage any quicker – so be sure to check with your provider.

Speak to an expert if you want more advice in this area.

Fixed rate offset mortgages

As with “standard” home loans, both fixed and standard variable rates (SVR) of interest are available for offset mortgages.

Fixed rate deals tend to be better than SVR (although there is no guarantee), and can last between two to 10 years before you would move onto your lender’s SVR. A handful of providers offer a fixed rate for offset mortgages for the entire term length.

Other individual circumstances

Your affordability, loan to value (LTV), credit history, and even the type of property you’re investing in (to name a few) will all play a key factor as to what rates you’re offered and whether a lender deems you eligible for an offset mortgage.

If you have concerns regarding any of the above and want to know whether an offset mortgage is the best option for you, contact us today and we’ll refer you to an expert specialising in your niche who can usher you in the right direction.

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Why you should speak to a whole-of-market offset mortgage broker

We’ve helped over 120,000 people find the right offset mortgage, even those who may have been declined a mortgage or had bad credit history.

In fact, our customers consistently rate us 5 stars on Feefo, mainly due to our high levels of service, but also because we offer offers a 5-star service with access to expert brokers who are:

  • Whole of market.
  • Have a working relationship with all offset mortgage lenders, not just a select few.
  • Already know the offset mortgage lenders to go to as they successfully arrange these already.
  • Can offer bespoke advice on offset mortgages.
  • OMA Accredited advisors.
  • Have completed a 12 module LIBF accredited training course.

Talk to an offset mortgage expert today

If you like what you’re reading or require more information, call Online Mortgage Advisor on 0808 189 2301 or make an enquiry online.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee, and there’s no obligation or marks on your credit rating.

Ask a quick question

We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different mortgage subjects.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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