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Offset mortgages can help you pay less mortgage interest by linking your savings to your mortgage. We explain how offset mortgages work, who they suit, the pros and cons, how much they cost and how to work out whether one could save you money.
KEY INFORMATION
With offset mortgages:
But:
An offset mortgage is more likely to be worth it if you have a large savings balance, need access to your savings and would save more in mortgage interest than you could earn after tax in a savings account. It is less likely to be worth it if you have little in savings or can get a much cheaper standard mortgage.
Offset mortgages can work best for:
However, offset mortgages often have higher rates than standard mortgages, so you’ll need to weigh up if it’s right for you.
| If you… | You might consider |
| Have large savings and want flexibility | Offset mortgage |
| Want to repay your mortgage as quickly as possible | Overpaying |
| Have savings in a cash ISA | Compare ISA returns with offset savings |
| Have little or no savings | Standard mortgage |
| Are self-employed | Offset mortgage |
Get fee-free mortgage advice from the award-winning expert advisers at Mortgage Advice Bureau.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Please note some branches of Mortgage Advice Bureau may charge a fee for mortgage advice if you go direct. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed. So make sure you use this site, this form or phone number for fee-free advice.
An offset mortgage is a type of mortgage that allows you to reduce the amount of interest you pay by ‘offsetting’ your losavings against your mortgage balance.
The mortgage amount you’ll pay interest on will be your mortgage balance, minus the amount in your linked savings account.
Here’s a worked example of how an offset mortgage can work, compared to a standard mortgage.
This example is based on a £200,000 repayment mortgage over 30 years at 5%, with £50,000 in savings. The standard mortgage assumes the savings are held in an account paying 4% interest. However, this example is for illustration only and doesn’t take into account any higher rates that may apply to offset mortgages, any mortgage fees, or any tax that may be payable on savings interest.
| Standard mortgage | Offset mortgage | |
| Mortgage balance charged interest | £200,000 | £150,000 |
| Monthly mortgage repayment | £1,074 | £805 |
| Interest earned on £50,000 savings | £167/month gross. | £0 |
| Net monthly position | £907 | £805 |
| Estimated monthly benefit | – | £102 |
Whether or not an offset mortgage could benefit you will depend on your circumstances. But you may want to explore getting one if you:
If you have a significant sum in savings, linking them to your mortgage may save you more on interest than you would earn after tax. Higher and additional-rate tax payers will pay tax on savings interest sooner and at higher rate than those earning less, unless the money is in a cash ISA. Read on for more on this.
If you’re self-employed and have an irregular income or may need to hold a large amount of cash for an upcoming tax bill, you may want to explore an offset mortgage.
The flexibility of an offset mortgage suits some borrowers, for example if they are expecting a lump sum in the form of a bonus payment or inheritance.
Some lenders offer “family offset mortgages”, these involve someone taking out a mortgage and a loved one putting savings into a linked account to reduce the amount of interest payable. Read on for more on these mortgages.
With an offset mortgage, your savings are linked to your mortgage. Instead of earning interest on those savings, they reduce the amount of your mortgage you’re charged interest on.
The basic calculation is:
Mortgage balance – linked savings = mortgage balance charged interest
To compare the difference, try using our mortgage cost calculator twice:
For example, if your mortgage is £200,000 and you have £50,000 in savings, enter £200,000 first, then compare it with £150,000.
This can give you an estimate of whether you may be able to save with an offset mortgage. However, offset mortgage rates, fees and lender criteria vary, so it’s a good idea to get expert advice from a mortgage broker who can do the calculations for you and give you tailored advice.
Not everyone will be eligible for an offset mortgage. As with any mortgage, lenders will look at your income, outgoings, credit history and the size of your deposit before deciding whether to lend.
Offset mortgages can also have extra requirements. For example, you’ll usually need to open a linked savings account with the lender because your savings need to be held in an account connected to the mortgage. You may also find you need a larger deposit than you would for some standard mortgage deals.
Lenders will usually consider:
Because offset mortgages are less common than standard mortgages, it’s a good idea to speak to a mortgage broker. They can check which lenders offer offset deals, whether you’re likely to qualify, and whether an offset mortgage is likely to save you money compared with a standard mortgage.
Get fee-free mortgage advice from the award-winning expert advisers at Mortgage Advice Bureau.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Please note some branches of Mortgage Advice Bureau may charge a fee for mortgage advice if you go direct. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed. So make sure you use this site, this form or phone number for fee-free advice.
Our Mortgage Expert Sarah Tucker says: “Offset mortgages can be a brilliant option for borrowers who have built up meaningful savings and want those savings to actively reduce the amount of interest they pay on their mortgage, while still keeping access to their money. Offset mortgages can work particularly well for borrowers who value flexibility. However, offset mortgages typically come with higher interest rates, so it’s important to assess whether the benefits outweigh the additional cost.”
So it’s important to get advice based on your circumstances. The easiest way to do this is by getting fee-free mortgage advice from a broker.
When deciding whether an offset mortgage is right for you, here are some of the pros and cons to consider:
Yes, offset mortgages are still available in the UK, but they are less common than standard fixed-rate or tracker mortgages. This means you may have fewer lenders and deals to choose from.
Offset mortgage rates may also be higher than standard mortgage rates, so it’s important to compare the overall cost carefully. A mortgage broker can help you find out which lenders currently offer offset mortgages and whether they are likely to suit your circumstances.
Some lenders that offer these mortgages include:
However, availability changes, and some lenders may restrict offset deals by loan-to-value, income, account type or the borrower’s personal circumstances.
Also, the best mortgage lender for you will depend on your circumstances. So get expert advice from a mortgage broker.
Offset mortgage rates are often higher than comparable standard mortgage rates. However, the lowest rate is not always the cheapest option overall.
If you have a large amount in savings, the interest you save by offsetting may outweigh the higher mortgage rate. But if your savings balance is low, a standard mortgage with a lower rate may work out cheaper.
When comparing deals, make sure you include the mortgage rate, fees, linked account rules and the savings interest you would give up.
The best offset mortgage rate for you won’t necessarily be the lowest headline rate. You’ll need to compare the total cost of the deal and whether the offset benefit is likely to outweigh any higher rate or fees.
When comparing offset mortgage rates, look at:
Because offset mortgages work differently from standard mortgages, it’s important to look beyond the rate alone. A mortgage broker can compare offset and non-offset deals and calculate whether the interest you could save is likely to outweigh any higher rate, fees or savings interest you would give up.
Different types of offset mortgages include:
It’s also possible to get ‘Family Offset mortgages’ and there are two different ways in which these work:
If you’re considering a family offset mortgage, make sure you get expert advice. You can get fee-free mortgage advice from the award-winning expert advisers at Mortgage Advice Bureau. Compare deals or speak to an adviser today.
Here’s the step by step process of how to get an offset mortgage.
Start by finding out what your mortgage options are. Speaking to a fee-free mortgage broker is the quickest and easiest way to find the right mortgage for you.
Your next step is to get a Mortgage in Principle (sometimes called an agreement or decision in principle). This is a statement from a lender on how much they would lend you ‘in principle’ based on information you have provided about your income and outgoings. You can arrange a Mortgage Agreement in Principle today with the fee-free service provided by Mortgage Advice Bureau.
Once you’ve chosen your mortgage deal, it’s time to start the formal mortgage application process. Your mortgage broker can take this forward for you.
Data from the Financial Conduct Authority’s (FCA) Mortgage Lending and Administration Return shows that in December 2022, there were 830,000 offset mortgages, which represented a total of 7% of all mortgages in the UK.
Mortgage Advice Bureau searches over 100 lenders so you don’t have to.
Get fee-free mortgage advice from the award-winning expert advisers at Mortgage Advice Bureau.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Please note some branches of Mortgage Advice Bureau may charge a fee for mortgage advice if you go direct. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed. So make sure you use this site, this form or phone number for fee-free advice.
Offset mortgages and overpaying on your mortgage can both reduce the amount of interest you pay on your mortgage, but they work in different ways.
Key differences between offset mortgages and overpaying your mortgage
| Offset mortgage | Mortgage overpayments |
| Your savings remain accessible if you need them. | Money used to overpay usually can’t be withdrawn later. |
| Offset mortgage rates can be higher than standard mortgages. | Standard mortgage rates are typically lower than for offset mortgages. |
| Flexible | Less flexible |
| No overpayment limit | Overpayments often limited to 10% per year |
An offset mortgage may suit you if:
Overpaying may be better if:
If you have a lump sum of savings, you may be wondering whether you’re better off keeping it in a savings account or using it to offset your mortgage.
An offset mortgage reduces the amount of your mortgage that you’re charged interest on while a savings account pays you interest on your cash.
When you’re exploring your options, you’ll need to consider factors such as mortgage rates, savings rates and your tax position.
One advantage of an offset mortgage is that the interest savings are effectively tax-free. By contrast, interest earned in a standard savings account may be subject to tax if it exceeds your Personal Savings Allowance (PSA) and it’s not held in an ISA.
The amount of savings interest you can earn tax-free depends on your income tax band:
| Annual earnings | Personal Savings Allowance (PSA) | Tax rate on savings interest above the PSA |
| £17,571 to £50,270 | £1,000 | 20% |
| £50,271 to £125,140 | £500 | 40% |
| £125,140+ | £0 | 45% |
This means offset mortgages can be particularly attractive for higher-rate and additional-rate taxpayers, who may pay tax on some or all of the interest earned on their savings.
If your money is held in a cash ISA, any interest you earn is tax-free regardless of your income. This can make a savings account more attractive than an offset mortgage for some borrowers.
However, ISAs have annual contribution limits.
If you’re deciding whether to get an offset mortgage or use a savings account, as well as speaking to a mortgage broker you may also find it useful to speak to an independent financial adviser.
What happens at the end of an offset mortgage depends on the type of mortgage you have.
If you have a repayment offset mortgage and have made all your payments, your mortgage should be fully repaid by the end of the term. Your linked savings will remain yours, unless you choose to use them to pay off some or all of the mortgage earlier.
If you have an interest-only offset mortgage, you’ll still need to repay the outstanding mortgage balance at the end of the term. This could be from savings, investments, selling the property or another repayment strategy agreed with your lender.
If your initial offset deal ends before your mortgage term finishes, you may move onto your lender’s standard variable rate unless you remortgage or switch to a new deal.
Your discussion with a mortgage broker will be based on your circumstances but here are a few good questions to get you started:
In most cases you can access your savings if you need to, although if you withdraw savings, you will reduce the amount you offset your mortgage by. However, some lenders require a minimum amount of savings in your linked account.
You may decide to put down a bigger deposit instead of getting an offset mortgage in order to reduce your loan to value, as this may mean you can access a better mortgage deal. However, you may prefer an offset mortgage so that you’ll have more flexibility with your savings. What’s right for you will depend on your circumstances so it’s a good idea to discuss your options with a mortgage broker.
Offset mortgages allow you to reduce your mortgage payments or pay it off sooner by ‘offsetting’ your savings against your mortgage balance.
Overpaying your mortgage means making regular or one-off lump sums on top of your usual mortgage payments. But make sure you won’t incur an early repayment charge if you do this.
This depends on your offset mortgage. Some deals allow you to make unlimited overpayments on an offset mortgage but some lenders may charge an early repayment charge if you overpay by a certain amount.
Yes, you can get offset Buy to Let mortgages but they are less common so you’ll typically have a smaller choice of lenders.
This will depend on the rate you can get access to. If you know the rate, you can use our online mortgage cost calculator to see instantly how much it will cost. Alternatively, speak to a mortgage broker. They’ll run through your options and explain the costs.
In some cases, if your linked savings equal your mortgage balance, you may be able to offset the full amount so little or no mortgage interest is charged. But whether this is possible depends on the lender’s rules and product terms and you may still need to make capital repayments if you have a repayment mortgage.
Yes, some lenders may offer interest-only offset mortgages, although availability will depend on the lender and your circumstances.
With an interest-only offset mortgage, your linked savings reduce the balance you’re charged interest on, but your monthly payments only cover the interest. You’ll still need a credible repayment plan to repay the mortgage balance at the end of the term.
Interest-only mortgages can be higher risk because the capital does not reduce unless you make separate repayments. So it’s important to get advice before choosing this type of mortgage.
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