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The Family Offset Mortgage allows a family member to link a savings account to a mortgage, so that the interest that would have been earned on the savings is offset against the loan. This payment counts as an overpayment on the loan and it can either help to pay off the mortgage sooner or, over time, reduce the monthly payments.
How a Family Offset works
With conventional savings and mortgage accounts you receive interest on your savings and you pay interest on your mortgage. Dependent on your tax status, tax is either deducted from the interest you receive on your savings at the standard rate of 20% or the higher rate of 40%.
With a Family Offset Account, the savings of one family member are linked to the mortgage of another family member as two elements of one account. No interest is paid on the savings. This means that there is no tax to deduct. The attraction of a Family Offset Account is that every month an amount equal to the gross interest that would have been earned on the savings is credited to the mortgage account without the deduction of tax. This reduces the mortgage balance. A smaller mortgage balance means that the family member is charged less interest on their mortgage over time. This offers parents the ability to help out in a way with which they feel comfortable, whilst keeping control of their money.
Other features of our Family Offset Accounts
- The savings are always available for withdrawal with instant access.
- Each year, on the anniversary of the completion of the mortgage, the Society provides an annual review facility whereby the remaining term of the mortgage can be shortened or extended, (see Offset Terms & Conditions for more details).
- There are no overpayment restrictions on a Family Offset mortgage.
- The interest rate used to calculate the credit to the mortgage account is always the interest rate that is applicable to the mortgage.
- The mortgage repayment is calculated on the gross mortgage balance and not on the net amount of the mortgage and savings balances.
Here's an example of how our Family Offset mortgage works
Let's say the mortgage is for £150,000 and there are savings of £50,000, and the interest rate on the mortgage is 3.45%.
If the mortgage was a conventional interest-only mortgage, the mortgage interest charged would be £5,175 per annum (£150,000 x 3.45%) and, unless overpayments are made, the mortgage balance would not reduce.
With our Family Offset Mortgage, the mortgage balance would reduce each year by £1,725. This is the amount that the savings of £50,000 would earn in a conventional savings account at 3.45% without tax being deducted.
If the saver is a basic rate tax payer and interest was earned on the savings instead, only £1,380 would be received after tax, a difference of £345 per annum. Over a 25 year mortgage the "savings" would be £8,625. The interest rate on the savings would need to be 4.32% for interest of £1,725 to be received, net of tax.
If the saver is a higher rate tax payer it gets even better, as interest of only £1,035 would normally be received net of tax, a difference of £690 per annum. Over a 25 year mortgage the "savings" would be £17,250. To receive the £1,725 the savings would need to be earning 5.75%. And remember the savings are available to withdraw at any time.
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How a Family Offset mortgage can reduce the mortgage term and save on interest
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Let's say the mortgage is on a repayment basis, for £150,000 and there are savings of £50,000. Assuming the Family Offset savings balance does not change and the monthly repayments on the mortgage stay the same, the term on a 25 year mortgage could be reduced by almost 6 years and around £18,000 in mortgage interest would be saved.
The figures in this example assume an interest rate of 3.45% for the life of the mortgage. |
If you have any questions or would like to talk through any of our mortgage products, please contact our Mortgage team on 01858 412610 - they will be happy to help.
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