Save interest payments with an offset mortgage
An offset mortgage can be beneficial to borrowers who have a savings lump sum they want to be able to access easily, and could save them thousands of pounds in mortgage interest payments.
- What is an offset mortgage?
- What types of offset mortgages are available?
- Offset mortgage rates
- How do offset mortgages work?
What is an offset mortgage?
An offset mortgage is a home loan where a person's savings are used to reduce the amount of interest paid each month, without actually spending the money.
For example, if you had a £250,000 mortgage but put £30,000 in savings against the mortgage you'd only pay interest on £220,000. The mortgage lender would hold onto the £30,000 until you wanted it back, at which point interest would be charged at the new level. So if you wanted £10,000 back, you'd then start paying interest on the mortgage minus £20,000.
You still must repay the full mortgage, but you save money on the interest that is being charged.
An offset mortgage could save you hundreds of pounds in repayments each month, but they can come with higher rates which could negate some of the savings.
What types of offset mortgages are available?
There are all the usual types of loans available with an offset mortgage. You could choose from:
- Fixed rate mortgage: Interest is set for a certain period such as two, five or 10 years.
- Interest only mortgage: Only repaying the interest of a mortgage and then repay the mortgage in full at the end of the term.
- Tracker mortgage: A variable interest mortgage where the interest moves up and down with the Bank of England's base rate.
- Discount offset mortgage: Interest payments are at a discount of the lender's standard variable rate
- Family offset mortgage: This is an offset mortgage where a family member can provide the savings capital, rather than the mortgage holder.
Offset mortgage rates
Offset mortgages can save you money on interest but the rates available are usually higher than a standard fixed or tracker deal. This is because they come with the flexibility of being able to access your savings when you want.
When deciding whether an offset mortgage is right for you, it's a good idea to compare the savings you will make in interest repayments to the interest you could earn if that money went into a savings account instead. When interest rates are low it is difficult to make money on savings, but if they are stronger you may need to carefully compare money saved in interest repayments with the money you could make in a savings account.
Another factor to consider is if putting the savings towards a deposit or to pay off more of the mortgage outright would free up access to lower mortgage rates for other deals.
Our mortgage partners at Brighton & Hove compare rates of hundreds of deals to help you find the best price for your circumstances. Click here to fill out a short form and discover the rates.
How do offset mortgages work?
Offset mortgages work by putting your savings against your mortgage to lower the interest you pay. Savings ‘offset’ the amount of interest paid so while your mortgage may be £200,000, putting £20,000 savings against the mortgage means you pay interest on just £180,000.
Do I get my savings back with an offset mortgage?
Yes, you can get your savings back with an offset mortgage, usually at any time during the term. But if the savings are returned when the mortgage is still open you will start being charged more in interest repayments.
If you still have savings in your offset account when the mortgage has been paid off, you will get these returned to you. Be aware that while the savings are in the offset account they won’t be earning interest, unlike if they were in a savings account.
Can I withdraw money from an offset account?
Yes, you can withdraw as much or as little money as you want from your offset account. If you do withdraw money you will start paying interest on more of the loan because there will be less money offsetting the mortgage.
Estimated monthly mortgage costs
| Job | Estimate |
| Secured loan | £102.00 per month |
| Remortgaging | £1195.00 per month |
| Cheap variable rate mortgage | £1159.00 per month |
| Cheap tracker mortgage | £1303.00 per month |
| Cheap offset mortgage | £1088.00 per month |
| Cheap interest only mortgage | £1147.00 per month |
| Cheap fixed rate mortgage | £1245.00 per month |
| Cheap capital repayment mortgage | £1256.00 per month |
| Cheap buy to let mortgage | £1271.00 per month |