Offset mortgages
Link your savings to your mortgage and take control of your repayments with more freedom and flexibility.
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What is an offset mortgage?
If you're a homeowner or planning to buy, you'll be aware of different mortgage types – fixed-rate, tracker, variable – but one that often flies under the radar is the offset mortgage. This is a flexible way to reduce the amount of interest you pay. In some cases, it could even help you pay off your mortgage years earlier.
If you've got savings sitting in an account, even if you're not planning to touch them right away, an offset mortgage could be the option that finally puts them to good use.
How offset mortgages work
Offset mortgages link your savings to your mortgage, but you're not giving the bank your money. Instead, your savings stay in your account and you still have access to them, but the lender uses that amount to reduce the mortgage balance they charge interest on.
Let's say you owe £200,000 on your mortgage, and you have £25,000 in savings. With an offset mortgage, you'll only pay interest on the loan amount of £175,000. That means your monthly payments could be lower, or you could keep them the same and pay off your mortgage quicker.
Some lenders give you the choice between reducing your monthly mortgage payments or shortening your mortgage term. The best choice depends on your long-term goals - whether you prefer lower payments now, or paying off the mortgage sooner to save on interest overall.
Who should consider an offset mortgage?
Offset mortgages aren't right for everyone, but they can be useful if you have savings and want to make them work harder without locking them away:
You're self-employed or have irregular income
If your income changes from month to month - let's say you run your own business, freelance, or earn commissions - you might already keep a savings buffer for quieter times. With an offset mortgage, those savings don't just sit there. Linking them to your mortgage lets them quietly reduce your interest while still being available if needed.
You're saving and not ready to spend it yet
Maybe you're saving for a new kitchen, a wedding, or even university fees. You know you'll need the money in the next year or two, but for now, it's just sitting in your savings account earning minimal interest. With the offset benefit, that money can reduce your interest instead.
You're thinking ahead about tax efficiency
Savings interest is taxable once you go above your personal savings allowance (£1,000 a year for basic-rate taxpayers, £500 for higher-rate). But with offset mortgages, you're not earning interest - you're saving on mortgage interest, which isn't taxed. So it can be a tax-efficient way to use your money.
If you're a higher-rate taxpayer, you could pay zero tax on interest earned from your savings by using them to offset your mortgage instead.
Summing up
An offset mortgage can be a smart way to make your savings work harder, reduce the amount of interest you pay, and give you more control over your mortgage. It won't suit everyone - especially if you don't have much in savings - but for the right homeowner, it can offer big long-term benefits.
Frequently Asked Questions
How do I set up an offset mortgage?
The process is the same as with other repayment mortgages, except your mortgage account is linked to your savings balance to reduce the interest payable on your loan. You'll still make monthly repayments, but with less interest charged overall. Most lenders require a minimum opening deposit, and you can transfer money in and out of your linked savings account freely. Mortgage repayments are typically collected by direct debit in the usual way.
How much could I save with an offset mortgage?
It depends on how much you have in savings and the size of your mortgage, but the savings can really add up over time. Even offsetting £10,000 could shave thousands off your interest across the life of your mortgage, especially if rates are high or you're early in your term. The more you keep in the offset savings account and the longer, the more you'll benefit from reduced interest charges.
Do I still have access to my savings?
Yes, you do. Your savings stay in a linked account that you can access at any time, just like a normal savings account. That means if you suddenly need the money for a car repair, emergency, or opportunity, it's yours to use. Once you withdraw money, you'll pay interest on a larger portion of your mortgage again, so it's smart to use that access with a bit of planning.
Are interest rates higher on offset mortgages
Offset mortgage rates can be slightly higher than standard mortgage rates because of the added flexibility they offer. But in many cases, the interest savings from offsetting your savings can more than make up for that difference. It's important to compare total costs - not just the rate - and consider how long you plan to keep savings in the linked account to see if it works in your favour.
Can I offset a joint savings account?
Yes, many lenders allow you to link joint savings accounts, which is ideal for couples or families with shared finances. In fact, some lenders let parents or even grandparents link their savings to help a child or grandchild reduce their interest payments and progress on the property ladder. It's a great way to support loved ones financially without actually giving them your savings - you keep full access and ownership of your money.
What happens if my savings run low?
If you dip into your savings, the amount offset against your mortgage reduces, so you'll pay interest on a larger balance. That said, most offset mortgages are designed to be flexible, so you can add funds back in when you're ready. It's helpful for people with variable incomes or short-term expenses, allowing your finances to adapt without needing to remortgage or change deals.
Can I still overpay on an offset mortgage?
Yes, most offset mortgages allow overpayments, which can be an effective way to reduce your loan faster. Typically, lenders let you overpay up to 10% of the outstanding mortgage amount each year without penalties. When combined with the savings from offsetting, even small overpayments can significantly reduce the overall cost compared to a non-offset mortgage.
About the author
Lawrence Howlett
Lawrence Howlett brings a results-driven mindset to his writing, shaped by over a decade of experience across finance, legal, and energy sectors. As the founder of Moneysavingadvisors, he’s built a reputation for turning complex financial concepts into clear, actionable insights for consumers. His writing stands out for its clarity, structure, and focus on delivering value.
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