If you have money in a savings account, you could link its balance to an offset mortgage, which will reduce the amount of interest you pay.
Mortgages have higher interest rates than most savings accounts. Paying less interest on your mortgage will usually be more cost effective than the return you could get from a savings account.
How do they work?
You have to hold at least two accounts with your lender:
Your mortgage account
One or more savings accounts
The savings account will pay no interest, but the amount you have in it saves you money on your mortgage balance.
You will only be charged interest on the balance of your mortgage minus the amount in your savings accounts.
For example, if you had a mortgage for £170,000 and £30,000 in your linked savings account, you would only be charged interest on £140,000.
You can usually withdraw from the savings account whenever you need to, but you will lose the interest reduction on any money you take out.
Choose a benefit
Less interest on your mortgage means you can pay less overall while you clear its balance. Offset mortgages usually let you choose either:
A shorter mortgage term
Lower monthly repayments
Are offset mortgages always best?
A normal mortgage could work out cheaper if you can get:
A mortgage with a low interest rate
A savings account with a high interest rate
Compare this to how much an offset mortgage could save you. You can work this out using an offset mortgage calculator.
Offset mortgages FAQs
Will I still be able to access the money in my offset account?
Yes, most let you withdraw from the savings account at any time, but you will no longer get reduced interest once the money is taken out.
Can I have more than one account for an offset mortgage?
Yes, many lenders let you link multiple savings accounts to your offset mortgage.
Is there a limit to the amount I can offset?
Most lenders let you pay as much as you like into the savings account. If your savings and mortgage balances are the same, no interest will be charged.
What if my savings are higher than my mortgage balance?
You would pay no mortgage interest but get no benefit from the extra in your savings. You could save this elsewhere or pay off some of your mortgage.
Can I get a buy to let offset mortgage?
Most lenders only offer offset mortgages for your own home, but some occasionally offer them for buy to let purchases.
Can I get an offset remortgage?
Yes, it is possible to switch from a normal mortgage to a new offset deal.