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Help your clients put their money to harder work with our mortgage Offset facility.
A savings account (called an Offset Saver Account) is set up alongside your client's mortgage.
The money in the savings account is then offset against the mortgage. So, while your client won’t earn any interest on their savings, in effect they won't be charged any interest on the same amount of their mortgage.
Your clients can benefit from Offset in one of two ways:
With Reduced Term, while the monthly mortgage repayments stay the same each month (subject to changes in mortgage rates), the amount of mortgage interest your client needs to pay is lower due to their Offset savings. More of their monthly mortgage payment is therefore used to repay the balance of the loan which effectively means they’re making mortgage overpayments each month. This could allow your client to pay off their mortgage sooner and save thousands of pounds in interest.
This example illustrates how a client could benefit from the Reduced Term option.
Example based on a:
By offsetting, the term of the mortgage would be reduced by 3 years and 5 months, and £46,440 is saved in interest payments. The reduction of the mortgage term is illustrated in the diagram below. In addition, there would be enough savings in the Offset Saver Account to repay the mortgage balance 7 years and 1 month early.
With this option, the mortgage term remains unchanged, and instead the monthly mortgage interest payment is reduced. The offset benefit your client earns each month from the savings in their Offset Saver Account is in effect used to reduce how much mortgage interest they’ll pay the following month.
This option could offer your client more disposable income each month. And, in addition to reducing their monthly payment, they could also save thousands of pounds in interest payments during the term of your mortgage.
We collect mortgage payments one month in arrears, so it's important to remember the savings balance in one month will reduce the mortgage payment your client makes two months later. For example, the offset benefit accrued in April would reduce the mortgage payment for May, which would be collected on 1 June.
This example illustrates how the Reduced Monthly Payment Offset option works.
Example based on a:
The column ‘Total mortgage payment after offset benefit applied’ shows how the Reduced Monthly Payment option reduces the monthly mortgage payments. In total, £23,673 would be saved in interest payments during the mortgage term, and there would also be a sufficient Offset Saver Account balance to repay the mortgage balance 24 months early.
|Month||Number of days||Mortgage payment date||Offset benefit earned||Offset benefit applied||Mortgage payment before offset benefit applied*||Mortgage payment after offset benefit applied**|
|15 Jan to 28 Feb||45||01.03.13||£107.57||£0.00||£1,332.06||£1,332.06|
* The first mortgage payment is bigger than the subsequent normal monthly mortgage payments because there is more mortgage interest due as the mortgage starts part way through the month.
** The offset benefit will accrue from the day your client deposits funds into their Offset Saver Account and each month it will be applied to the mortgage payment for the following month.
Try our Offset calculator to see the benefits of offsetting.
The Offset Saver Account facility can be used on our mortgages if the eligibility criteria are met.
How interest is calculated
Offset Saver Account
If you’ve chosen to Offset, we’ll open an Offset Saver Account for you. You’ll be able to transfer money to and from your Offset Saver Account using the nominated account you selected when you applied for your Scottish Widows Bank mortgage.
You can use Internet Banking and telephone banking. If you selected Internet Banking at application stage, you’ll receive your Internet Banking login details by post. You can also see your mortgage balance and your Offset Saver Account balance by logging in to Internet Banking.
No, you won’t earn any interest on the savings in your Offset Saver Account. Instead, in effect, you won’t be charged any interest on the equivalent amount of money in your mortgage. This also means there is no tax liability.
So, by reducing the interest payable on your mortgage your savings are in effect earning mortgage rate interest. If the balance of your Offset Saver Account is greater than the mortgage portion you have chosen to offset against, you won’t receive any credit interest on the difference between the two amounts. If this situation happens, we’ll write to you as you may like to open an interest bearing savings account or even pay off some or all of your mortgage balance.
Irrespective of your Offset Saver Account balance, each month you’ll continue to pay the full monthly mortgage payment. This means your offset benefit is effectively being used to make mortgage overpayments each month.
This will gradually reduce the mortgage balance, which then reduces the term of the mortgage and saves you money.
Your monthly mortgage payment will be reduced each month, based on the offset benefit you accrue from the balance of your Offset Saver Account. Your offset benefit will accrue from the day you deposit funds into your Offset Saver Account and each month it will be applied to the mortgage payment for the following month. So, for example, the offset benefit earned from the savings in your Offset Saver Account for the month of March, will be deducted from your mortgage payment for the month of April (which we’ll collect on 1 May). This means your mortgage payment will vary most months.
If you have a repayment mortgage, you will always pay the capital amount each month as it is only mortgage interest that is reduced each month.
We’ll send you a payment change letter each month your payment changes, which you’ll receive at least ten working days before your next mortgage payment.
We’ll collect your first monthly mortgage payment on the first day of the month following the first full month after completion. For example, if your mortgage completes on 15 January your first mortgage payment will be on 1 March.
Your first payment will be bigger than your normal monthly mortgage payment because your normal payment just covers the month in which it’s due. However, a new mortgage often starts part way through a month. So, for example, if your mortgage completes on 15 January, your first mortgage payment would be on 1 March and would include the interest due from 15 to 31 January, in addition to the normal payment due for February.
In the above example, if you’ve chosen Reduced Monthly Payment as your Offset benefit and you have savings in your Offset Saver Account from 15 January, then the benefit will accrue from that date. However, the first occasion your monthly mortgage payment reduces will be on 1 April. This means your Offset benefit will accrue from the day you deposit funds into your Offset Saver Account and each month it will be applied to your mortgage payment for the following month.
We collect your mortgage payment one month in arrears. So, it’s important to remember that following your first payment, the savings balance in one month will reduce the mortgage payment you make two calendar months later. For example, Offset benefit earned in April would reduce your May payment, which would be collected on 1 June.
Mortgage interest is calculated daily. To ensure that standard monthly mortgage payments don’t fluctuate each month, we divide 365 days by 12.
365/12 = 30.42
Therefore, every month your mortgage payment is based on 30.42 days.
If you have an interest only mortgage, your monthly mortgage payments may well be £0 for several months throughout the year. However, each month your accrued Offset benefit will be applied to the mortgage payment for the following month. This means that, for a March mortgage payment that is collected on 1 April, the Offset benefit applied to it will be from February (28 days). Therefore, if you are 100% offsetting, you’d still have:
30.42 days – 28 days = 2.42 days of interest to pay on 1 April.
Or, for a September mortgage payment that is collected on 1 October, the Offset benefit applied to it will be from August (31 days). This would mean:
30.42 days – 31 days = 0.58 of accrued Offset benefit we will store and add to next month’s (September) Offset accrued benefit.
If you have a repayment mortgage, you will always pay the capital amount each month as it is only the interest amount that you can Offset against.
No. If the savings balance in your Offset Saver Account is greater than the mortgage portion you are offsetting against, you won’t earn any additional interest.
In this scenario, you may want to consider paying off your mortgage balance, or transferring some money into an interest bearing savings account.
No, you can also benefit by saving regularly.
When your mortgage balance is no longer outstanding we'll automatically transfer the balance of your Offset Saver Account to your nominated account.
You can only offset against one rate / repayment method – at application stage you’ll need to choose which one.
You can open one Offset Saver Account.
Your savings are held in a completely separate account – called an Offset Saver Account. Although you are using your savings to reduce the balance of your mortgage for interest purposes you can access them at any time should you need the money.
We believe this gives you the best of both worlds:
Yes, choosing offset doesn’t affect the flexibility of making mortgage overpayments. Please check the Terms and Conditions of the mortgage you have chosen, because restrictions can apply.
Because we don’t actually pay interest on Offset savings balances, this means there is no tax liability. So, by reducing the interest payable on your mortgage your savings are in effect earning mortgage rate interest.
If your money was earning interest in a savings account, you would have to pay income tax on any interest earned in excess of the personal savings allowance. From 6 April 2016 the personal savings allowance is £1,000 for basic rate taxpayers or £500 for higher rate taxpayers. There is no personal savings allowance for additional rate taxpayers (those earning over £150,000).