Offset Tracker Mortgages Explained

If you have a nest egg put away and are wondering how it might help towards your mortgage without putting it all across, lenders offer a specific product that does this while still allowing you to keep your savings intact.

While a good mortgage broker can explain your options, here are tracker offset mortgages explained to help you understand whether this type of loan, coupled with this repayment style, might work for you.

What is an offset tracker mortgage?

As the name suggests, these products are offset mortgages taken out with a ‘tracker’ repayment type, meaning that your interest rate can fluctuate during the term.

Offset mortgages, in general, reduce the interest you pay on your mortgage by swapping it for any interest you’d otherwise gain on your savings with the same bank. This, in turn, brings down your monthly repayments, which might allow you to pay your loan balance off quicker or benefit from more disposable income.

There are several options with offset mortgages, but the tracker element refers to how your interest is calculated. Rather than fixing, the rates will ‘track’ an external marker, usually the Bank of England’s base rate, so your monthly repayments will be dictated by economic fluctuations in interest rather than just your lender.

How do they work?

Your mortgage provider will hold an offset savings account for you, where you keep your surplus funds. You won’t receive any interest for this money like you would in any other savings account, but instead, it will be used to bring down the amount of interest you’ll pay out with your mortgage.

For example, if you have a mortgage of £200,000 and you have savings of £60,000, you would only need to pay interest on £140,000. What your actual repayments will be will depend on the external marker your mortgage is tied to and what your lender has set their tracker mortgage rates at above that. This works in a very similar way to standard tracker mortgages.

How a broker can help you find one

If you’ve established you’d like to explore more about offset mortgages, whether an offset tracker is right for you, rather than a fixed-rate or another type of variable rate, for example, is something you should be sure about.

A good broker will talk you through your options and bring clarity to what can seem like a complex route. They should provide impartial guidance and support, too, and ultimately hold your hand through any application process, which should stand you in better stead when it comes to getting a good deal.

Make an enquiry to use our matching service to find a broker who specialises in offset tracker mortgages.

What are the benefits?

These days, having lots of money in the bank and benefiting from the interest that’s generated by it is largely a thing of the past. However, this product is a way of ensuring your savings work that bit harder for you rather than just sitting in an account not doing a great deal.

While you’re losing gains in interest from your savings, this amount will likely be less than what you pay out in interest via your mortgage. So, if you can offset your mortgage interest, you could be better off.

Of course, how much you have in savings will be the real decider of how well this type of mortgage might work for you. If you have an equal amount of savings to mortgage still to pay, you might fully offset paying any interest at all (subject to individual lenders’ policies).

Current market conditions will also affect whether you choose an offset tracker mortgage. This is because interest rates and mortgage deals, in general, are ultimately affected by these conditions. Offset mortgages can be more expensive because they come with added benefits and features.

Which lenders offer them?

Barclays has been known to offer offset trackers currently on either a two or five-year deal. NatWest and Accord are still open to offset mortgages, too.

It’s worth bearing in mind that each option comes with a fair amount of small print and should be studied carefully to make sure there are no hidden terms, which is something your broker can do for you.

Can you get an interest-only offset tracker mortgage?

Yes, this might be viable for the right kind of borrower, but there are risks involved, so you should always speak to a professional advisor before considering this option. Interest-only mortgages exist so you can benefit from lower monthly repayments, and if you’re offsetting that against any significant savings, and your tracker rate is good, you could end up with an attractive deal.

However, these mortgages are usually more expensive and more complicated to obtain. You will need a repayment vehicle and might need a higher deposit, and some lenders ask for a higher income requirement, so it’s not without its challenges.

Speak to a broker who specialises in offset tracker mortgages

When it comes to complex home financing and specialist products like offset tracker mortgages, it is, without exception, always sensible to work with a broker who understands the economic updates and the effects on mortgages and borrowers.

It’s also crucial that you find one who is experienced, impartial, fully trained, and has high credentials. This person should also have access to the entire market and exceptional industry contacts.

Our network includes brokers who specialise in offset tracker mortgages and arrange them every day. We can match you with the right advisor today. Contact us on 0330 818 7026 or make an online enquiry to get started.