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See how you could benefit from offsetting

With an Offset Saver Account you could save money on your mortgage. On this page you can find out how it works, how you could benefit and how to apply.


You could lose your home if you don’t keep up your mortgage repayments


How it works

The way our mortgage offset facility works is simple. A savings account (called an Offset Saver Account) is set up alongside your mortgage.

The money in your savings account is then ‘offset’ against your mortgage. So, while you won’t earn any interest on the savings in your Offset Saver Account, in effect you won’t be charged any interest on the same amount of your mortgage — as shown by the diagram below. 

Offset diagram

You can benefit from this in one of two ways:

  • Paying off your mortgage early ( Reduced Term), or;
  • Reducing your monthly mortgage payment (Reduced Monthly Payment)

Option 1 – Reduced Term

With Reduced Term, while your monthly mortgage repayments stay the same each month (subject to changes in mortgage rates), the amount of mortgage interest you need to pay is lower due to your offset savings. More of your monthly mortgage payment is therefore used to repay the balance of your loan which effectively means you’re making mortgage overpayments each month. This could allow you to pay off your mortgage sooner and save money in interest.

How much sooner you pay off your mortgage is up to you. The more money you have in your Offset Saver Account the less interest you’ll be charged on your mortgage.

This example illustrates how you could benefit from the Reduced Term option.

Example based on a:

  • £200,000 mortgage over 25 years on a repayment basis. A product fee of £999 has also been added to this, giving an overall borrowing amount of £200,999.
  • 2 year fixed rate of 3.49% reverting to a Standard Variable Rate of 4.24% after two years. The overall cost for comparison is 4.3% APR.
  • £25,000 lump sum in the Offset Saver Account from completion (this example is based on a completion date of 15 January 2022).
  • £100 regular monthly payment to the Offset Saver Account.
  • These are example interest rates and not necessarily the current rates offered by Scottish Widows Bank.

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. In addition, there would be enough savings in the Offset Saver Account to repay the mortgage balance 7 years and 1 month early.

offset reduction graph

For more detailed information about offset, which we recommend you read, please see our Offset FAQs.


Option 2 – Reduced Monthly Payment

With this option, the term of your mortgage remains unchanged, but your monthly mortgage payment is reduced. This is because the offset benefit you earn each month from the savings in your Offset Saver Account is in effect used to reduce how much mortgage interest you pay the following month.

This means your savings could give you more disposable income each month. And, in addition to reducing your monthly payment, you could also save thousands of pounds during the term of your mortgage.

We collect your mortgage one month in arrears, so it's important to remember the savings balance in one month will reduce the mortgage payment you make two months later.  For example, the offset benefit accrued in April would reduce your 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:

  • £200,000 mortgage over 25 years on a repayment basis. A product fee of £999 has also been added to this, giving an overall borrowing amount of £200,999.
  • 2 year fixed rate of 3.49% reverting to a Standard Variable Rate of 4.24% after two years. The overall cost for comparison is 4.3% APR.
  • Completion date of 15 January 2022
  • £25,000 lump sum in the Offset Saver Account from completion.
  • These are example interest rates and not necessarily the current rates offered by Scottish Widows Bank.

The column “Mortgage payment after offset benefit applied” shows how the Reduced Monthly Payment option reduces the monthly mortgage payment. 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 1st March 2022 £107.57 £0.00 £1332.06 £1332.06
March 31 1st April 2022 £74.10 £107.57 £1005.30 £897.73
April 30 1st May 2022 £71.71 £74.10 £1005.30 £931.20
May 31 1st June 2022 £74.10 £71.71 £1005.30 £933.59
June 30 1st July 2022 £71.71 £74.10 £1005.30 £931.20
July 31 1st August 2022 £74.10 £71.71 £1005.30 £933.59

* 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.
** 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.

For more detailed information about offset, which we recommend you read, please see our Offset FAQs.

 

Summary Box
Key Product Information for our Savings Account(s)
Account name Offset Saver Account
What is the interest rate? You won’t earn any interest on savings in the Offset Saver Account. Instead, you won’t be charged any interest on the equivalent amount of money on your mortgage.
Can Scottish Widows Bank change the interest rate? No, because we don’t pay interest we can’t change the interest rate on this account.
What would the estimated balance be after 12 months based on £1,000 deposit? As there’s no interest paid on the account, the balance at 12 months would remain at £1,000. This assumes that:
  • You don’t withdraw any money.
  • You make your initial deposit payment on the day you open the account.
  • You don’t make any further deposits.
How do I open and manage my account? When you apply for your mortgage, there’s an option to select Offset. You can also apply for Offset at any time while your mortgage application is being processed. If your mortgage account is already open, you can fill in the Offset Saver Account application form.
  • Applicants must be aged 18 and over and a UK resident.
  • You can manage your account by telephone, online or by post.
  • The minimum opening deposit is £100.
  • Additional deposits must be either for a minimum of £100 or a regular payment via direct debit of £25 or more.
  • The account can’t have a balance of more than £1,000,000. If you wish to discuss special arrangements please call us.
Can I withdraw money?
  • Yes. You can make withdrawals from the account.
  • Individual withdrawals must be at least £100.
Additional information
  • You can close the account at any time.
  • There’s a 14-day cancellation period from the account opening date during which the account can be closed without any charge.

Offset calculator

Use our offset calculator as a guide to understand the concept of offsetting with Scottish Widows Bank.

The figures used in the offset calculator are for illustrative purposes only. This is not a formal mortgage offer or decision in principle.

For more detailed information about offsetting (including how we calculate your offset benefit and when this benefit will be applied to your mortgage) you can:

Use the offset calculator

Representative example

A mortgage of £250,000 payable over 25 years, initially on a fixed rate for 2 years at 2.50% and then on our variable rate of 4.24% for the remaining 23 years, would require 24 monthly payments of £1,121.54 followed by 276 monthly payments of £1,352.95.

The total amount payable would be £400,331.16 made up of the loan amount, plus interest of £150,331.16.

The overall cost for comparison is 4.1% APRC representative.

This is an illustration of a typical mortgage and its total cost.


Frequently asked questions

Which account is used for my offset savings?

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.

How do I transfer money to and from my Offset Saver Account?

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.

Will I earn interest on the savings in my Offset Saver Account?

No, you won’t earn any interest on the savings in your Offset Saver Account. In effect, this means, 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.

 

How does the Reduced Term offset benefit work?

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.

How does the Reduced Monthly Payment offset benefit work?

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 the mortgage interest element of your payment that is reduced each month.

How do I find out what my mortgage payment will be each month if I choose Reduced Monthly Payment?

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.

When will my first mortgage payment be after completion?

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.

How much will my first mortgage payment be? And, if I’ve chosen Reduced Monthly Payment as my offset benefit, will this reduce the first payment amount?

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.

How are mortgage interest and my monthly mortgage payment calculated?

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 the amount in my Offset Saver Account is the same as the outstanding balance of my mortgage and my offset benefit is Reduced Monthly Payment, will my monthly mortgage payment be £0?

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.

Can I earn interest on my Offset Saver Account savings if the balance is greater than my outstanding mortgage balance?

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.

Do I need to transfer a lump sum to my Offset Saver Account to benefit from offsetting?

No, you can also benefit by saving regularly.

What happens to my Offset Saver Account savings once my mortgage is paid off?

When your mortgage balance is no longer outstanding we'll automatically transfer the balance of your Offset Saver Account to your nominated account.

If my mortgage is made up of more than one rate or repayment method, can I offset against my total mortgage balance?

You can only offset against one rate / repayment method – at application stage you’ll need to choose which one.

How many Offset Saver Accounts can I open?

You can open one Offset Saver Account.

Can I access the savings in my 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:
• immediate access to your savings
• and, while you are not using your savings, make them work for you by reducing the amount of interest you are charged on your mortgage.

Can I still make mortgage overpayments if I choose offset?

Yes, choosing offset doesn’t affect the flexibility of making mortgage overpayments, subject to the Terms and Conditions of the mortgage you have chosen.

What are the tax advantages?

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).

You could lose your home if you don’t keep up your mortgage repayments