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Offset mortgage with Adam

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Summary

Offset Select is a flexible way to use your bank deposits to reduce mortgage repayments or pay a mortgage off faster

6 min read

 

  • Make the most of your deposits in different currencies 
  • Put a variable income to work to help reduce your mortgage
  • Help your family to buy a property
  • Offset Select mortgage and you

    Our Offset Select mortgage could help you if you have large deposits in sterling, euros or US dollars because of regular savings or a recent bonus for example, or from the sale of some of your assets.

    Case study - Putting an inheritance to work

    Our client inherited a large sum in sterling. He wanted to use the money to repay his mortgage faster, but didn’t want to commit all the cash so that he could keep his options open once the mortgage was repaid. Using Offset Select he was able to put part of his inheritance in an Offset Deposit account, which reduced the interest he paid on his mortgage, while leaving him the option to repay or reduce the balance at any time.


    Case study – Managing multiple currencies

    Our client, a European executive, had savings in sterling from bonuses and expected to receive additional cash in euros from the sale of some shares. Our international team helped her buy a holiday home by putting together a tailored solution using the Offset Select mortgage. It allowed her to use her deposits in both sterling and euros to reduce her monthly mortgage payments – while retaining access to her hard-earned cash.

    To find out more about our Offset Select mortgage, speak to your private banker, or call Adam 24 on 0131  225 8484.

    Our Offset Select mortgage could help you if your income varies every month or comes from multiple sources. This is often the case for entrepreneurs, self-employed professionals, barristers, and partners in law or accountancy firms.

    Case study – Selling a stake in a business

    Our client, a high-profile entrepreneur, decided to sell her investment properties. Having already repaid the mortgage on her own home, she wanted to raise debt to ensure that she could move quickly when a new business or investment opportunity presented itself. She used Offset Select to raise a loan on her home while using the proceeds of her business sale to reduce the amount of interest she paid. This meant she had both amounts to hand to fund further investments.
     

    Case study – Using two savings accounts

    Our client, a barrister, put some of her earnings aside each month for regular tax payments. As well as that account, she had a separate ‘rainy day’ savings pot. Although the interest on these deposits is low, she liked the fact that she had instant access to her money. When her existing mortgage came up for renewal, she converted it to an Offset Select mortgage. This meant her savings helped reduce the interest she paid on the mortgage and her monthly payments. But she could still access the cash easily if she had a ‘rainy day’ scenario.

    To find out more about our Offset Select mortgage, speak to your private banker, or call Adam 24 on 0131  225 8484.

    With a third of first-time buyers needing family support to buy their first home*,  the “bank of mum and dad” has become a reality for many. Using our Offset Select mortgage, parents could help their children on to the property ladder by making their own deposits available for an Offset Select mortgage taken out by their children. Offset Select could also help couples who want to buy a home together while keeping separate savings accounts.

    Case Study – The bank of mum and dad

    Our client, a mother-of-three, wanted to help her daughter and son-in-law on to the property ladder. However, she didn’t want to simply ‘gift’ the money away, and she wanted to make sure she would be able to offer all of her children the same level of financial support. An offset arrangement enabled her to dedicate some of her deposits to reducing the interest paid on her daughter’s mortgage. She still has access to her cash and isn’t liable for her daughter’s debt. And she could still use separate accounts to do the same thing for her other children in the future.
     

    Case study – Joint mortgage, separate savings

    Our clients, a couple with separate, successful careers, wanted to buy a home together while making the most of each of their individual life savings. Using an Offset Select mortgage, they each retained access to their own savings in separate accounts, but were able to use the total value of the combined accounts to reduce their monthly mortgage payments.

    To find out more about our Offset Select mortgage, speak to your private banker, or call Adam 24 on 0131  225 8484.

    * Source: Social Mobility Commission, March 2017

  • Why an offset mortgage with Adam

    We are proud to be one of the few lenders to offer an offset mortgage for both residential and buy-to-let purposes. The Adam Offset Select mortgage is an innovative and highly flexible approach to purchasing property. It could be an efficient way of paying off your mortgage faster or reducing your monthly payments.
     

    Use multi-currency deposits to reduce your mortgage interest

    As well as your sterling deposits, you could use deposits in euros and US dollars.
     

    Help your family with your lifetime savings

    Offset deposits don’t have to be in the same name as the borrower - so for example, you could use your own deposits to reduce payments on your children’s mortgages.

    Importantly, you don’t lose access to your money and you aren’t liable for the debts of the borrower.
     

    Stay in control of your cash

    Whether it’s saving for a holiday, future tax payments, deposits on a home or gifts for your children, we understand that you may be saving for several different things at the same time. Offset Select lets you keep the deposits you want to offset in up to 10 separate, easy-to-manage Offset Deposit accounts.
     

    Flexible and tailored to your needs

    You could use Offset Select with either a repayment or interest-only mortgage.

    You could also make overpayments at any time without incurring early repayment charges, letting you pay off your mortgage when it suits you.

  • How Adam offset works

    Our Offset Select mortgage allows you to deduct (or ‘offset’) your bank deposits against your mortgage balance when calculating how much interest you need to pay. As a result, you only pay interest on the difference between the outstanding mortgage balance and your offset deposit balance.

    While you won’t earn any interest on these cash deposits, they could work harder for you in one of two ways: reducing your monthly repayments or reducing your overall mortgage term.

    It’s important to remember that if you reduce your Offset Deposit balance during the term of your Offset Select mortgage, you won’t gain the same degree of benefit. If you’re not confident about maintaining an Offset Deposit balance for the whole term, then Offset Select might not be the right product for you.


    Using Offset Select to reduce your monthly payments

    Let’s consider two people in very similar situations. Each has an £800,000 interest-only mortgage and cash on deposit that averages around £200,000 each day.

    Where they differ is in their mortgage arrangements. One has a conventional mortgage while the other has an Offset Select mortgage.

     

     

    Without offset savings

    With offset savings
    Mortgage balance £800,000 £800,000
    Amount on deposit £200,000 £0
    Offset deposit balance £0 £200,000
    Monthly deposit interest* £83 £0
    Monthly mortgage interest payment** £1,660 £1,245
    *Assumes 0.50% interest per annum on non-offset deposits; no credit interest is payable on deposits held in the offset deposit account
    **Assumes a mortgage interest rate of 2.49% per annum

    As no interest is paid on offset deposits, the second borrower doesn’t get the £83 monthly interest on their deposit. However, they’ll pay about £415 less in interest every month should they hold their £200,000 offset balance for the length of the mortgage.

    As this is an interest-only mortgage, both borrowers will still need to repay the balance at the end of the term.

    Calculating the saving over the lifetime of a mortgage is not quite so simple because interest rates will change. In this example, if the interest rate remained the same over the entire mortgage term, the saving would amount to £5,000 a year, which would add up to about £125,000 over the life of a 25-year mortgage.
     

    Using offset to reduce your mortgage term

    In this example, both borrowers have an £800,000 capital and interest mortgage each, and cash on deposit that averages at around £200,000 at the end of each day. The first has a conventional mortgage and places their cash balance on deposit, while the other uses it towards an Offset Select mortgage.

    By holding an offset balance for the length of the mortgage, the borrower with the Offset Select mortgage could repay their mortgage four years, and eight months early – saving up to £236,348 in interest.

    As no interest is paid on offset deposits, the second borrower may not get the £26,560 total interest on their deposit, but they’ll pay approximately £236,348 less in interest at the end of their mortgage term should they hold their £200,000 offset balance for the length of the mortgage.

     

    Without offset savings

    With offset savings
    Mortgage balance £800,000 £800,000
    Amount on deposit £200,000 £0
    Offset deposit balance £0 £200,000
    Total deposit interest at end of term* £26,560 £0
    Total mortgage interest paid at end of term** £441,908 £205,560
    Mortgage repayment term 25 years 20 years, 4 months
    *Assumes 0.50% interest per annum on non-offset deposits over 25 years; no credit interest is payable on deposits held in the offset deposit account.
    **Assumes an initial mortgage interest rate of 2.49% per annum for two years with follow-on rate of 4% for the remaining 23 years.

    How interest offsetting works

    Interest is charged at the applicable rate on the difference between your mortgage and offset deposits subject to the following restrictions:

    • Your offset deposits count fully towards offsetting for up to 50% of your mortgage balance
    • For the remaining 50%, every £1 in offset deposits will count as 50p towards offsetting against your mortgage. This means you are unable to fully offset your mortgage balance.
    • Any surplus offset deposits over 100% of the mortgage balance will not count towards offsetting your mortgage balance.

    To find out more

    If you would like to find out more about offset mortgages from Adam, discuss your requirements with one of our expert mortgage advisers, or have any questions, please contact your private banker or Adam 24 on 0131 225 8484

    Alternatively, you can consult our Mortgage Calculator Tool or find full details of our range of mortgages here.

  • Important imformation

    This product may not be suitable to you if:

    • you require access to your offset deposits while paying your mortgage that could significantly impact the benefits of the product; please note that instant access to your offset deposits may not apply, should you fail to repay your mortgage
    • you do not have any deposits to offset for the duration of the borrowing
       

    There are a number of risks that should be understood before committing offset deposits in foreign currencies.

    • The value of your foreign currency offset deposits could reduce against your GBP mortgage balance should foreign exchange rates work against you; hence it is important that you understand the risks related in using foreign currency deposits against your Offset Select mortgage.
    • Please note that negative interest rates may apply to offset deposits placed in euros.

    Information and figures given are for illustrative purposes only and do not constitute a commitment or offer to lend. The actual amount will depend on subsequent checks we undertake.

    YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

    For mortgage amounts over £750,000. Over 18s only. Terms and conditions apply. You may not be eligible for all Coutts mortgage solutions.

Key Takeaways

Our Offset Select mortgage allows you to deduct (or ‘offset’) your bank deposits against your mortgage balance when calculating how much interest you need to pay. You can use Offset Select with balances in sterling, US dollars or euros, and can even use your savings to offset the mortgage of a third party, such as a family member.

ABOUT ADAM Lending

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