An offset mortgage links your savings to your mortgage. Instead of earning interest on your savings, the money is offset against your mortgage balance, so you only pay mortgage interest on the difference.
Homebuyers and remortgagers with meaningful savings — including the self-employed holding tax reserves — who want their savings to work harder while staying accessible.
Your savings sit in a linked account with the same lender. The lender subtracts your savings balance from your mortgage balance and only charges interest on what is left. For example, with a £200,000 mortgage and £20,000 in linked savings, you only pay interest on £180,000. Your savings remain yours and you can usually withdraw them at any time — but while they are offsetting, they earn no interest.
Most lenders let you choose how the interest saving is used.
Your payments are recalculated on the reduced balance, so your monthly cost falls. Useful if you want breathing room in your budget.
You keep your payments at the full amount, so the interest saving goes towards clearing the capital faster. This can take years off the mortgage term.
Overpaying reduces your mortgage balance permanently, but once the money is in, getting it back usually means a further advance or remortgage. With an offset, your savings stay in a separate account you can draw on whenever you need them — helpful for the self-employed keeping a tax reserve, or anyone who wants an emergency fund that still works for them.
The mortgage interest you save is often higher than the interest a savings account would pay, and because you are saving interest rather than earning it, there is no tax to pay on the benefit. That can make offsetting particularly attractive for higher-rate taxpayers.
Offset rates can be slightly higher than the cheapest standard deals, so the sums only work if you keep a reasonable savings balance. Your savings earn no interest while they offset, and if you withdraw them your payments or term will be recalculated. Not every lender offers offset mortgages, so the choice of deals is narrower. We compare the total cost against a standard deal before you decide.
General information only, not personalised mortgage, protection, tax, legal or medical advice. Please don't share personal details.
Answers may not cover your lender's or insurer's exact terms. For advice or a specialist referral about your situation, contact Elize or call 07825 946723. Your home may be repossessed if you do not keep up repayments on your mortgage.
Tell me roughly what you keep in savings and I will compare an offset deal against a standard mortgage, so you can see the difference in pounds before deciding.
Ask me to compare my optionsYou can also read this guide as a PDF — handy for saving, sharing or printing.
Wellness Mortgage & Protection is an empathy-led mortgage and protection adviser based in Devon, supporting clients across the South West and throughout the UK. Get in touch for advice tailored to your situation.
