Compare Offset Mortgages

If you have an offset mortgage, your savings help reduce how much interest you pay over the term of your mortgage. You will pay interest on your mortgage loan minus your savings amount. For example, if you have a £200,000 mortgage and £40,000 in a linked savings account, you will only pay interest on £160,000.

As your mortgage payments are calculated on the full loan amount, you will effectively be overpaying each month. This means you can usually choose to reduce your monthly payments or keep them the same to reduce your mortgage term, so you are mortgage-free sooner.

It won’t suit everyone, but it might be worth considering if you have substantial savings and want to pay off your mortgage early, or pay less each month.

It may also appeal if you would otherwise pay tax on interest that you earn on your savings, as you won’t earn interest on your linked savings. While not earning interest on savings may appear to be a drawback, the interest saved on your mortgage may be greater than you would earn on savings.

But there are lots of factors to consider when choosing a mortgage, and it makes sense to compare how an offset mortgage stacks up against a standard mortgage, including making overpayments to pay off your mortgage sooner.

If you’re buying a home, you may also want to consider if a bigger deposit would make more sense, to reduce your mortgage’s LTV so you can access lower rates.

Using online mortgage calculators and offset mortgage calculators can help you compare the figures, or you can contact a mortgage broker.

If you are unsure about which type of mortgage is best for you, consider using a mortgage adviser.

» MORE: Should you use a mortgage adviser or go direct?

Whether you can increase your loan amount will depend on the lender, but some providers will let you borrow more at the same interest rate. There is usually a maximum amount you can borrow based on how much you have left to pay off on your mortgage.

You can take out money from your savings account whenever you like, which may be more straightforward than increasing your loan amount, which would require affordability checks.

Offset mortgages tend to have slightly higher interest rates than regular mortgages, so you will need to balance this against the savings you might make with this more flexible type of mortgage.

They can be, depending on how you use them. If you choose to keep your monthly payments the same, you can shorten your mortgage term due to the interest savings you make with an offset mortgage. As you are paying interest on a lower amount, keeping your payments the same means you are effectively overpaying and will repay the loan quicker.

If you choose to lower your repayments, perhaps so you have more disposable income each month, your mortgage term will stay the same. But you will still make savings on interest through linking your savings account and paying interest on a lower amount.

The main difference is that unlike your offset savings, once you’ve overpaid on a standard mortgage, you can’t dip into those funds unless you are able to remortgage.

Offsetting is linked to your savings, which you can access any time to make deposits and withdrawals. Your savings are not being used to pay off what you owe; they just sit alongside your mortgage to reduce how much interest you pay. If you pay more into your linked savings account, it will reduce how much interest you are charged. But you can withdraw that amount later, at any time.

Overpayments on a standard mortgage, whether as a one-off lump sum or regular payments, are extra payments, which can help clear your debt sooner and reduce how much interest you pay. You’ll need to make sure you don’t exceed any limit set by your provider, so you avoid an early repayment charge. Always check the terms of your mortgage deal, so you’re clear on any penalties.

Similar to all mortgages, you may have to pay extra fees, such as an arrangement fee, booking fee, valuation fee and legal fees. You can usually choose to pay these up front or add them to your mortgage balance. Remember that if you add the cost of extra fees to your mortgage, the interest you’re charged will be calculated on a higher loan amount.

If you exceed the maximum amount for overpayments on your mortgage or leave your term deal early, you may be charged an early repayment fee.

Not all fees apply to all products, though, so check carefully before you apply, and bear them in mind when comparing your options.

Yes. One of the benefits of an offset mortgage is you can access your linked savings, usually whenever you want to.

However, withdrawing money or paying money in will affect your balance and how much interest you pay. Your provider may ask that you have a minimum and maximum balance in your linked account.

No. If you are a private landlord with a buy-to-let mortgage, you can’t deduct mortgage interest from rental income to reduce your tax bill.

Instead, you will qualify for tax credit based on 20% of your mortgage interest payments.

» MORE: How tax relief works and how to claim it

Yes, buy-to-let offset mortgages are available, though not all providers offer them.

If you are a landlord paying more tax on rental income since the tax rules changed, you might want to reduce the amount of interest you are charged on a rental property mortgage. Offsetting your savings might help achieve this, and clear your mortgage earlier.

Yes, it is possible to offset your mortgage when you remortgage. This might be because you have built up your savings through receiving an inheritance, or had a salary increase, and you want to reduce how much mortgage interest you are charged.

You could ask for this facility through your existing lender or from your new lender if you are moving your mortgage elsewhere.

Bear in mind you will need to fulfil certain lending requirements, such as not exceeding the maximum LTV.

When you remortgage, be aware of the possibility of being charged for leaving your current deal and taking out a new one, or for making changes early. The deal isn’t your mortgage term, it's the period of time you gain a specific benefit from, such as a fixed rate of interest for three years.

Some lenders offer interest-only offset mortgages, where your savings help reduce how much interest you pay on your mortgage. But unlike a repayment mortgage, you don’t pay back the borrowed amount until the end of the mortgage term. You’ll be asked to have a repayment strategy to show that you’ll be in a position to pay back the original loan once the mortgage term ends. You will also need to pass affordability checks, which may include showing you could comfortably afford to pay an equivalent repayment mortgage and that you have a minimum income.

» MORE: How much mortgage can I afford?

Having a poor credit score may mean you’ll find it hard to pass the lender’s affordability checks. You may need a larger deposit, or be offered higher interest rates than if you had a good credit history.

Even so, having a bad credit history doesn’t necessarily mean you can’t get an offset mortgage. While you may have fewer options available to you, there are specialist bad credit mortgage lenders.

You might want to consider taking a few steps to improve your credit score before applying for a mortgage to help you access lower rates and increase your chances of being accepted.

» COMPARE: Bad credit mortgages

There is usually a maximum amount you can offset in your linked account, with anything above that limit not counting towards your offset benefits.

This surplus won’t earn you any interest, so you could move the surplus amount to another savings account.

The offset savings account may also have a minimum balance requirement.

To be accepted for an offset mortgage you will need to provide the same information and meet similar eligibility criteria as other types of mortgage.

This includes having a good credit score and meeting the lender’s affordability requirements. With an offset mortgage, there may be a maximum LTV you can apply for, and you may need a deposit or equity of at least 25% of the value of the property.

A simple way to get quotes from a number of specialist providers is by using our mortgage comparison tool.

Once you’ve filled in the short form, you’ll be matched with suitable lenders and can compare your options. You can then apply direct with the provider or through a broker.

When you’re comparing your options, look at the interest rate charged and whether the initial rate is fixed or variable. Also factor in additional fees, such as application and completion fees, along with any penalties for paying all or part of your mortgage off early.