For many homeowners, the idea of saving on mortgage interest while keeping access to their cash sounds too good to be true. Yet that’s exactly what an offset mortgage can offer. By linking your mortgage to your savings, you could pay less interest, clear your balance sooner, and stay flexible with your money. This guide explains how offset mortgages work, who they suit best, and what to watch out for before deciding whether this type of loan could help you save.
What Is an Offset Mortgage?
An offset mortgage connects your mortgage account to your savings (and sometimes your current account). Instead of earning interest on those savings, you use them to ‘offset’ or reduce the amount of your mortgage that interest is charged on. For example, if you owe £200,000 on your mortgage and have £20,000 in linked savings, you’ll only pay interest on £180,000. You still have access to your savings, but while they sit in the linked account, they work to reduce your mortgage interest each month. For a broader overview, you can also read Equifax’s guide to offset mortgages, which explains how lenders assess your savings and mortgage balance.
How Offset Mortgages Work in Practice
Most offset mortgages are arranged on a variable or tracker rate, though a few lenders offer fixed-rate versions. The key is flexibility: you can deposit or withdraw savings at any time, and the amount of interest you pay adjusts automatically. You can usually choose to:
– Reduce your monthly payments, or
– Keep payments the same and shorten your mortgage term instead.
Many homeowners choose the second option — maintaining their usual payment to clear their mortgage sooner and save thousands in interest. If you’re weighing up how much of your savings could be linked to your mortgage, try our Mortgage Deposit Calculator
The Benefits of an Offset Mortgage
- Interest savings without locking your money away – your savings remain accessible, unlike an overpayment, where money can’t easily be withdrawn.
- Tax efficiency – because savings don’t earn interest, there’s no tax to pay on that interest, especially helpful for higher-rate taxpayers.
- Flexibility – ideal for freelancers, business owners or anyone with variable income who might need to dip into savings occasionally.
- Faster mortgage repayment – if you keep your monthly payments the same, you can reduce your mortgage term significantly over time.
Offset mortgages can also work as part of a wider financial plan — find out more about protecting your income and family through our Insurance and Protection services.
The Drawbacks to Consider
- Higher mortgage rates – offset products can have slightly higher interest rates than standard mortgages.
- You need savings to benefit – if your savings are small or tend to fluctuate, the advantages may be limited.
- Limited lender choice – only certain banks and building societies offer offset mortgages in the UK.
- No interest earned on savings – although you save on mortgage interest, you won’t receive any interest income on your savings while they’re linked.
Because offset products vary between lenders, it’s worth comparing several examples — see MoneyfactsCompare’s offset mortgage guide for details on current deals across the UK market.
Who Can Benefit Most from an Offset Mortgage?
Offset mortgages are most effective if you: -
- Have substantial or steady savings, or hold cash for future tax bills or large expenses.
- Are self-employed or have irregular income.
- Want to pay off your mortgage faster without losing access to your money.
- Are higher-rate taxpayers looking for an efficient way to make savings work harder.
If you’re a first-time buyer with modest savings, a standard repayment mortgage may be more suitable. See our First-Time Buyer Mortgages guide
Why Speak to Argyll Drummond
As a Mortgage Broker in York, Argyll Drummond provides independent, whole-of-market advice to help clients make confident, informed decisions. We can help you compare products, calculate potential savings, and find the right mortgage for your financial goals. Learn more about our services.