Understanding your Bank of Scotland offset mortgage

An offset mortgage is a smart way to use your savings to reduce the cost of your mortgage. With Bank of Scotland, you have two offsetting options, giving you flexibility to manage your money in a way that suits your goals.

Offsetting options

Option 1: Reduce your mortgage interest

Your savings are used to reduce the mortgage balance on which you pay interest. You won’t earn interest on your savings, but you’ll pay less interest on your mortgage—and there’s no tax to pay on the savings you offset.

Example:

If your mortgage balance is £100,000 and you have £10,000 in your linked savings account, you’ll only pay interest on £90,000.

Your choices:

  • Pay off your mortgage sooner (shorter term).
  • Lower your monthly payments (lower payments).
  • Reduce your overall mortgage balance without changing the term (reduced debt).

Option 2: Maximise savings interest

You earn interest on your savings (up to the value of your mortgage), but this doesn’t reduce your mortgage interest. The interest earned may be subject to tax.

Note: Offsetting may not be beneficial if your savings interest rate is higher than your mortgage rate.

Note: Offsetting may not be beneficial if your savings interest rate is higher than your mortgage rate.

Three offset benefit choices

1. Shorter term

Ideal if you want to be mortgage-free sooner.

  • Monthly payments do not change as often as a result of offsetting so you're effectively overpaying each month.
  • More of your payment goes toward reducing the mortgage balance.
  • Your mortgage term is reduced where possible to help you pay off your mortgage faster if you have a Capital & Interest mortgage.

2. Lower payments

Helpful if you want more flexibility in your monthly budget.

  • Monthly payments adjust automatically based on your offset balance meaning they are likely to be lower.
  • Mortgage term and balance won’t change as a result of offsetting.

Note: If you’ve arranged to make overpayments, you won’t receive a monthly payment reduction.

3. Reduced debt

Great if you want to reduce what you owe without changing your mortgage term.

  • Monthly payments stay the same until a recalculation occurs.
  • You’re effectively overpaying, which reduces your mortgage balance.
  • After recalculation, payments adjust based on the new balance and remaining term so are likely to be lower.

Recalculations may occur. For example, the annual recalculation, where your interest rate changes, or if you make a change to your mortgage.

Getting started with offsetting

To benefit from offsetting, simply deposit money into your linked Bank of Scotland savings account. You can:

  • Start saving regularly.
  • Transfer savings from another provider.

Good to know:

  • You can offset with any amount of savings.
  • Enjoy easy access to your savings.
  • Manage your accounts and view balances online anytime.