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Offset mortgages

Tell us about yourself and our broker partner Mojo will find the best offset mortgage rates for you

A young woman sits on the sofa with a laptop open on the coffee table in front of her. She is holding and looking at the screen with a slight smile. In the background, her young son, also sitting on the sofa, is using a tablet.

What is an offset mortgage?

An offset mortgage lets you use your savings to reduce your mortgage interest. Offsetting is when the lender takes your savings balance away from your mortgage balance, before calculating the interest. This means you pay interest on a smaller balance – reducing the amount you’ll owe.

With offset mortgages your savings remain accessible to you if you need them. You can use them to help you repay your mortgage more quickly, but still have the savings to fall back on in an emergency. Sometimes people find this more appealing than using their savings to make mortgage overpayments or provide a larger deposit.

Offset mortgages are available on both purchase and remortgage products and as interest-only or repayment, however, you'll typically benefit more from an offset repayment mortgage.

How to compare offset mortgages

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How does an offset mortgage work?

With an offset mortgage, you need a savings account with your mortgage lender. Your savings account, or sometimes multiple savings accounts are linked to your mortgage account. Some lenders also allow you to link your current account to the same mortgage. 

Savings held in all linked accounts are then used to reduce the interest owed by offsetting the total savings balance against your outstanding mortgage balance.

For example: If you owe £100,000 on your mortgage, but have £20,000 across your offset savings accounts, you only pay interest on £80,000 of your mortgage balance.

Note: You won’t earn any interest on the savings in offset accounts. To ensure offsetting is the best use of your money, your mortgage interest rate should be higher than the rate you could earn in savings interest (after tax).

How do I get the best offset mortgage rates?

Offset mortgage interest rates are usually higher than ordinary residential mortgages, but not dramatically so. Most sit around the mid-market level, but the cheapest rates or longest fixes may not always be available with an offset facility. 

Offset mortgage rates also vary with your LTV (loan to value) and credit score just the same as any other mortgage. It's a good idea to compare offset mortgages carefully to find the most suitable one available for your circumstances. Look at the total cost including fees, not just interest rates. 

You should also consider how easily you can withdraw your money and the customer service provided by your lender.

Is an offset mortgage cheaper than a traditional mortgage?

It can be, but it will depend on your circumstances. Those with a larger savings balance and in a higher tax bracket will typically benefit most.

If you have a large amount of savings, an offset mortgage has the potential to save you a considerable amount of money on interest over the duration of your mortgage. Keep in mind that you will need to leave the savings in the account to continue benefiting at the same level, however.

The savings you make on interest can either be used to lower your monthly repayments, or you can continue to make the original monthly repayments, and reduce the length of your mortgage term.

Advantages of offset mortgages

  • When savings rates are low, you can make your money work harder by reducing your mortgage interest payments

  • If you have lots of savings you may have to pay tax on the interest you earn, whereas mortgage offsetting is tax-free

  • You can reduce your monthly payments, but still access your savings in emergencies

Disadvantages of offset mortgages

  • Your money may get better returns in long-term investments or a high-interest savings account

  • Offset mortgages often have higher interest rates than other products

  • Your savings may be put to better use by increasing your deposit and getting a better LTV (loan to value) and therefore more competitive mortgage deal

How much could an offset mortgage save me?

Mortgage interest is often higher than the savings interest paid on a standard savings account. Where this is the case, your money would be better used reducing your mortgage repayments, rather than adding to your savings.

Exactly how much you’re able to save depends on:

  • The interest rate you're offered

  • How much savings you have to offset against the mortgage balance

  • Which tax band you're in, as the higher your tax bill, the more you could potentially write-off through offsetting

For example:

  • You have a £150,000 mortgage at 4% APR over 25 years

  • You deposit £20,000 of savings with your lender

  • You only pay interest on £130,000 (even though you still owe £150,000)

Compared to paying the same rate of interest on the full mortgage balance, you save around £800 in interest charges per year.

You also have a savings account paying 2% AER

You’d be around £400 per year better off by offsetting your mortgage than you'd earn in interest by leaving the same balance of £20,000 in your savings account

Kellie Steedquotation mark
An offset mortgage can be a good idea if you’re looking to lower your monthly repayments and have the savings to do it. There are a few different types of offset mortgage, so be sure you pick the best option for your circumstances.
Kellie Steed, Mortgage Content Writer

Offset mortgages FAQs

Uswitch is not a mortgage intermediary and makes introductions to Mojo Mortgages to provide mortgage solutions. Uswitch and Mojo Mortgages are part of the same group of companies. Uswitch Limited is authorised and regulated by the Financial Conduct Authority (FCA) under firm reference number 312850. You can check this on the Financial Services Register by visiting the FCA website. Uswitch Limited is registered in England and Wales (Company No 03612689) The Cooperage, 5 Copper Row, London SE1 2LH. Mojo Mortgages is a trading style of Life's Great Limited which is registered in England and Wales (06246376). Mojo are authorised and regulated by the Financial Conduct Authority and are on the Financial Services Register (478215) Mojo’s registered office is The Cooperage, 5 Copper Row, London, SE1 2LH, and head office is WeWork No. 1 Spinningfields, Quay Street, Manchester, M3 3JE. To contact Mojo by phone, please call 0333 123 0012.