Updated Date: 29th October 2020

An offset mortgage lets you use your savings to help reduce the amount of interest you pay on your mortgage. You can still access the money in your savings account, but you won't earn interest on it. Instead, your mortgage is offset or 'reduced' by your savings, meaning you pay less interest on your mortgage. This can mean you 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.

Mortgages charge higher interest rates than most savings accounts pay. 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?

You have to hold at least two accounts with your lender:

  • Your offset mortgage account

  • One or more savings accounts

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.

Choose a benefit

Paying less interest on your mortgage means you will pay less interest overall while you clear its balance. Offset mortgages usually let you choose either:

  • A shorter mortgage term

  • Lower monthly repayments

Offset mortgages: Pros & Cons

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

  • You could choose to hold back some of your deposit to place in an offset mortgage linked savings account instead. This means you could still get to your money should you need to

  • They can be tax efficient for higher rate taxpayers, as you pay no tax on savings in a linked savings account

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

  • Few 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.

Best offset mortgage

You can find the best offset mortgage rates in our comparison table above.

Offset mortgage FAQs

Q

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

A

Yes, most let you withdraw from the linked savings account at any time, but you will no longer get reduced interest once the money is taken out.

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.

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

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.

Q

Can I get a buy to let offset mortgage?

A

Most lenders only offer offset mortgages for your own home, but some occasionally offer them for buy to let purchases.

Q

Can I get an offset remortgage?

A

Yes, it is possible to switch from a normal mortgage to a new offset deal.

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.