Savings in an Offset Mortgage

Hi, I have a quick question regarding an Offset Mortgage.

I want to get a small mortgage of approx £40000 and have the enough savings available to match the mortgage in full so it will be a 40k mortgage plus 40k placed in the offset savings account to cancel out the interest. I was thinking of an Offset Mortgage rather than a standard repayment. I don't want to use my savings up on the house purchase and be mortgage free as I may need this money in the future hence the mortgage.

In this case scenario is the Offset Mortgage a better option than a straight repayment mortgage? 

I also have money saved in a shares ISA but that cant be touched so don't want to add this to it plus savings rates are so low a cash iSA seems a waste of money.

Ps. I plan on initially taking the mortgage over 5 years and overpaying each month.

Any thoughts would be much appreciated.


  • amnblog
    amnblog Posts: 12,389
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    Yes, an offset mortgage would work here. Lenders can be cagey about 5 year mortgage terms however.
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • getmore4less
    getmore4less Posts: 46,882
    Name Dropper First Anniversary First Post I've helped Parliament
    The issue now with a lot of offset offerings is they are not as cheap as they used to be.

    There is still the trade off of cost to set up and running costs.
    for the 100% offset option you a want both to be low keeping in mind the costs if you do draw on the savings

    As the plan is to 100% offset the running costs are zero till you draw down the money.

    Low setup costs are also the better option in this scenario but that can impact the running costs.

    Don't tell the lender 
    it makes sense to go for the longest term possible just in case you do need the money.
    Also subject to rate  why not borrow as much as possible just in case you need more. 

    Setting up a cheap line of credit, make it a long term one.

    As an example a no fee 5y fix on £40k should be under 1.5%
    amount rate payment owing interest
    £40,000.00 1.50% £692.40 £0.00 £1,543.73

    Any offset option that has setup fees more than this better of with a regular fix.

    Some examples

    Barclays want £1749 fees ~1.72%
    First direct have no fee options but are ~3.3%+
    YBS have no fee and  ~ 2% options

    other lenders are available

    Scottish widows gets mentioned as being decent for offsets.

    Some lenders not taking new offset business.

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