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How to compare offset mortgage deals

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Mojo is a free online mortgage broker. We partner with them so you can get all the mortgage support you need in one place.

Mojo will find out about your circumstances, check your eligibility, and search across the whole of market to help you secure the best mortgage for your circumstances.

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What is an offset mortgage?

An offset mortgage lets you use your savings to reduce the amount of interest you pay on your mortgage.

You will still be able to access the money in your savings account, but you won't earn any interest on it.

Instead, your mortgage is offset or 'reduced' by your savings, meaning a smaller mortgage balance to pay interest on. This can help you to pay off the loan much sooner.

If you have money in a savings account, it could help you reduce your monthly payments, or pay your mortgage off faster.

Because mortgages tend to charge higher interest rates than savings accounts pay, it can work out cheaper overall to combine them than hold them in separate accounts. Use our offset mortgage comparison to find a deal that could save you money.

How do offset mortgages work?

With an offset mortgage, both your mortgage and your savings account will need to be with the same bank or building society so that they can be linked.

The value of your savings will then be deducted from your mortgage balance, meaning you will only be charged interest on the remaining amount.

You can add to, or withdraw, money from your savings as normal - although you'll earn no interest on money held in there.

Instead, for every extra pound you have saved, you will pay interests on one pound less of your mortgage.

For example, if you had an offset mortgage of £170,000 and £30,000 in your linked savings account, you would only be charged interest on £140,000.

The key to making offset mortgages work for you is their rate. Be sure to check you have enough savings to mean a cheap offset mortgage costs less than the best mortgage deal you can find elsewhere (adding in the money your would make in savings interest).

But with households savings close to record levels¹, and interest rates historically low, this could be a good option for people who've build up money in the past few months.

You can see how it works out below:

AmountInterest rateInterest amount
Savings£10,0001%£100
Mortgate £150,0002.40%£3,600
Total cost£3,500

However, if you take your savings and subtract them from your mortgage balance, even though they earn no interest of their own, you could still save money.

AmountInterest rateInterest amount
Savings£10,0000%£0
Offset mortgage£140,0002.40%£3,360
Total cost£3,360

What types of offset mortgages are available?

Fixed-rate offset mortgages

The interest rate you pay after the offset is fixed for an initial period, typically two, three, five or even ten years.

Tracker offset mortgages

After you've offset, the interest rate you pay depends on an external financial indicator, such as the Bank of England base rate. If that indicator goes up, so will your interest rate, but you’ll pay less if it falls.

Discount offset mortgages

Once you have offset, the interest rate is determined by a specified discount to the lender's Standard Variable Rate (SVR).

Interest-only mortgages

You only pay the interest you owe each month with these mortgages – you don’t pay any capital. Later you can sell the house to pay off the capital or use other funds to repay the debt.

Family offset mortgages

Family members, typically parents, put their savings in an account that’s offset against their child’s mortgage. This reduces the interest owed.

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How much could offsetting save you?

Paying less interest on your mortgage means you will pay less interest overall while you clear the balance. How much you save depends on what you owe, the interest rate you pay and how much you have in savings.

Offset mortgages usually let you choose between the following benefits:

  • A shorter mortgage term: you have the same monthly repayment sum, but you'll pay off your mortgage faster and consequently pay less interest overall 

  • Lower monthly repayments: saves you money now, freeing up disposable income for bills or other spending, but it can cost more overall than a mortgage with a shorter term

Offset mortgage rates

Although offset mortgages work differently from standard mortgages, you can still choose from fixed- and variable-rate deals.

If you choose a fixed-rate offset mortgage, the amount of interest you pay will typically be fixed for two, three or five years, making it a good option for those on a budget.

Alternatively, you could opt for a variable-rate offset mortgage. This tracks an indicator, such as the Bank of England base rate, and your monthly repayments can go up or down as a result.

Remember that offset mortgage rates are typically a little higher than standard mortgage rates. However, like standard mortgages, the interest rate you are offered will depend on your credit history and how much you want to borrow.

Here is how much an offset mortgage could save you

What are the pros and cons of offset mortgages?

The benefits of offset mortgages include:

  • You pay less interest on your mortgage debt, meaning you will pay it off earlier, or you can choose to make smaller monthly payments
  • You can still access your savings if you need to
  • They can be tax efficient for higher rate taxpayers, as you pay no tax on savings in a linked savings account
  • Some offset mortgages let you link up your current account as well as your savings account

The cons include:

  • Offset mortgage rates can be higher than standard repayment mortgages
  • You could need quite a lot in savings to really make a difference
  • Fewer lenders offer offset mortgage deals, so you may have little choice
  • If the best offset mortgage rates are high, it may be better to use your savings to overpay a standard repayment mortgage instead

Compare offset mortgages to see how much they could save you. You can work this out using an offset mortgage calculator.

Nisha Vaidyaquotation mark
To find the best offset mortgage, it's important to shop around and compare offset mortgage rates carefully. Make sure you factor in both the interest rate and the fee and consider whether you would prefer a fixed rate offset mortgage or a variable rate deal.
Nisha Vaidya, Mortgage Editor

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Why compare offset mortgage deals with money.co.uk?

By comparing offset mortgage deals you could save money on your home loan. Our award-winning mortgage comparison service helps you find our best interest rates. Our aim is to provide you with the most up-to-date information, as well as useful tools and calculators so to help you make life's most important decisions and take control of your money.

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¹The household saving ratio increased to 19.9% in Quarter 1 (Jan to Mar) 2021, the second highest on record according to the ONS.

Last updated: 17 September 2021