Find out the answers to the questions you have about offset.
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?
We’ll automatically transfer the balance to an Instant Saver Account, which will pay interest on your savings. The Instant Saver Account is an easy access account, meaning you can access some or all of your savings when you need them. We’ll write to advise you of your new account details and include the Terms and Conditions.
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).
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.