What is an Offset Mortgage? Money Advice Service


An offset mortgage actually offers the opportunity to save thousands of pounds, or to trim years off the term of your home loan, just by being more organised and smarter with your money.

The Money Advice Service is set up by government and offers free and impartial advice, tips and budget planners for all life’s money matters . We’re here to help you make better financial decisions.


Meet Mary

Mary is a web cake maker and she works for herself

She pays money into her savings account so she always has enough to pay her tax bill.

Mary also has a mortgage on her house.

She owes £100,000 on her mortgage and has £20,000 in savings.

That means Mary pays more in interest on her mortgage than she earns on her savings.

Mary wants to know if she’d save money with an offset mortgage

An offset mortgage would use money in Mary’s savings account to reduce – or offset – the interest she pays on her mortgage.

In Mary’s case, with an offset mortgage she’d pay interest on £80,000 rather than the full £100,000 she actually owes.

Because she’s paying less interest, Mary can pay off more of the amount she borrowed – called the capital – instead.

And that means she could take years off her mortgage term.

Mary could potentially save thousands of pounds in interest payments.

And she can access the money in her offset savings account at any time, if she needs to

Mary knows she won’t earn interest on her savings while they’re in an offset mortgage account.

But she has worked out she’s still better off, as she’ll save more in interest on her mortgage than she’ll lose on her savings

How much you can save will depend on the size of your mortgage, how much savings you have, the interest they’re earning and the interest rate you’d be charged for an offset mortgage.

You can get different types of offset mortgage, such as fixed rate, discount or tracker rate. If you want to know more about other types of mortgage, read more on our website.