Online Bank Accounts – UK

What is an offset mortgage ?

An offset mortgage is so called because it offers the borrower the possibility of diminishing the interest to be paid by offsetting a credit balance (tipically, the funds in savings and current accounts) against the mortgage debt.

For instance, if the mortgage balance is £100,000, the current account credit balance is £20,000 and the savings account credit balance is £30,000, then the interest is only charged on the outstanding net balance, i.e. £50,000 in this case.
Borrowers do not receive interest on their current and savings accounts linked to an offset mortgage.

What is a mortgage drop-lock facility ?

A mortgage drop-lock facility allows holders of variable rate mortgages, like for instance offset or tracker mortgages, to shift to a fixed mortgage rate, should they wish to in the future, without being charged any penalty.

Currently, variable mortgage rates are very low, but they could be rising in the future, in which case it could prove convenient to drop into a fixed mortgage rate.

Of course, as it is the case on any kind of mortgages, all mortgage conditions and terms must be evaluated properly prior to selecting a mortgage with a drop lock option.