Updated Date: 10th May 2021

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 you pay less interest on your mortgage balance. 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 quicker.

Because mortgages charge 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. 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 be deducted from your mortgage balance and you will only be charged interest on the remaining amount.

The savings account will earn no interest, but the amount you have in it saves you money on your offset 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 an offset mortgage of 170,000 and 30,000 in your linked savings account, you would only be charged interest on 140,000.

You can usually withdraw money from the savings account whenever you need to, but you will lose the interest reduction on any cash you take out. This means your repayments may go up.

It is also possible to take out an interest only offset mortgage. However, in this case you will be responsible for paying off the capital at the end of the mortgage term.

Offset mortgage options

Paying less interest on your mortgage means you will pay less interest overall while you clear the balance. Offset mortgages usually let you choose between the following benefits:

  • A shorter mortgage term, but the same monthly repayment amount - you'll pay off your mortgage more quickly and pay less interest as a result

  • Lower monthly repayments - saving you money in the short term

Offset mortgage rates

Although offset mortgages work in a slightly different way to standard mortgages, you can still choose from both fixed rate 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 - tracker - offset mortgage. This tracks the Bank of England base rate and your monthly repayments can go up or down in line with the base rate's movements.

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

How to get the best offset mortgage

To find the best offset mortgage, it's important to shop around and compare offset mortgage rates carefully. You can do this with ease by using our comparison table above.

Make sure you factor in both the interest rate and the fee to find the best deal, and consider whether you would prefer a fixed rate offset mortgage or a variable rate deal.

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

  • Most lenders let you make overpayments on an offset mortgage, allowing you to pay off your mortgage more quickly and cheaply

The cons include:

  • Offset mortgage rates can be higher than standard repayment mortgages

  • You need quite a lot in savings to really make a difference

  • You won't earn interest on your money, which can be disappointing when interest rates are high

  • 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.

Offset mortgage FAQs

Q

Will I still be able to access the money in my mortgage offset account?

A

Yes, most offset mortgage lenders let you withdraw money from the linked savings account at any time. However, that money will no longer offset your mortgage and your repayments will go up as a result.

For example, if you had an offset mortgage of 150,000 and 20,000 in your linked savings account, you would only pay interest on 130,000. But if you withdrew 10,000, you would start paying interest on 140,000.

Q

Can I have more than one account for an offset mortgage?

A

Yes, many lenders let you link multiple savings accounts to your offset mortgage - but they must usually be with the same provider. Some also allow you to link your current account.

Q

Is there a limit to the amount I can offset?

A

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

Q

What if my savings are higher than my mortgage balance?

A

If your savings are higher than your mortgage balance, you will pay no mortgage interest but you'll also get no benefit from the extra amount of money in your savings account. You might therefore prefer to save the extra sum in a separate savings account paying interest or use it to overpay on your mortgage

Q

Can I get a buy to let offset mortgage?

A

Most lenders only offer offset mortgages for residential purposes, but occasionally you may find a lender that offers offset mortgages for buy to let purchases.

Q

Can I get an offset remortgage?

A

Yes, if you currently have a standard mortgage, it is possible to switch to an offset deal by remortgaging. If you plan to remortgage before your existing mortgage deal has come to an end, check whether you will need to pay any early repayment charges.

About our mortgage comparison

Q

Who do we include in this comparison?

A

We include mortgages from every lender in the UK. They are all from lenders regulated by the Financial Conduct Authority. Here is more information about how our website works.

Q

How do we make money from our comparison?

A

We have commercial agreements with some of the companies in this comparison and get paid commission if we help you take out one of their products or services. Find out more here.
You do not pay any extra and the deal you get is not affected.