Connect Your Mortgage to Your Savings Account: Understanding Offset Mortgages

A Smarter Way to Reduce Interest and Pay Off Your Loan Faster

If you’re looking for ways to manage your mortgage more efficiently, reduce the total interest paid, or potentially shorten your mortgage term, an Offset Mortgage may be worth considering.

An Offset Mortgage links your mortgage account to a savings account held with the same lender. The balance in the savings account is used to reduce the amount of mortgage interest you pay, as interest is calculated on the net balance (i.e., mortgage amount minus savings).

How Do Offset Mortgages Work?

When you take out an Offset Mortgage, the lender will also open a dedicated Offset Savings Account . Instead of earning interest on your savings, your savings balance is used to offset the amount of your mortgage on which interest is charged.

For example: Mortgage: £300,000 – Savings: £100,000 – Interest is charged only on £200,000

Because mortgage interest rates are typically higher than savings rates, this arrangement may reduce your total mortgage interest more than you would earn from saving interest separately.

You can choose to: Lower your monthly mortgage payments , or – Maintain your original payments to pay off your mortgage faster.

Example Scenarios

Reducing Monthly Payments

If you have a £300,000 mortgage at 2% interest and £100,000 in savings:

Without offset: you pay interest on the full £300,000. With offset: interest is charged on £200,000, reducing annual interest by approximately £2,000. This compares to earning roughly £1,000 in a 1% savings account – a net gain of £1,000.

Shortening the Mortgage Term

If you keep your monthly payments the same as before:

You effectively overpay your mortgage each month. Example: With a £300,000 mortgage at 2% over 25 years (£1,272/month), offsetting £100,000 in savings can result in: Interest savings of around £18,135 Mortgage repaid 6 years and 8 months earlier.

Access to Your Savings

Your savings remain accessible. If you withdraw from the Offset Savings Account, your effective mortgage balance increases, and so does the interest charged. This offers flexibility while still allowing potential savings.

Early Repayment Charges (ERCs)

Offset Mortgages generally do not affect your standard overpayment allowances. Since the benefit of offsetting is derived from interest calculation rather than actual repayments, it does not usually trigger early repayment charges. However, always check your lender’s specific terms.

Who Might Benefit from an Offset Mortgage?

Offset Mortgages may be particularly suitable for:

• Higher-rate taxpayers , as there is no savings interest to tax.
• Self-employed individuals , who set aside savings for future tax bills.
• Those with substantial savings , looking for better returns than standard accounts.

Considerations

Offset Mortgages are not suitable for everyone. Some products may come with slightly higher interest rates or limited product availability. It is essential to compare options and seek regulated advice.

If you want to explore whether an Offset Mortgage suits your needs, an FCA-authorised mortgage adviser can help you understand your options.

Important Information

Your home may be repossessed if you do not keep up repayments on your mortgage.

This guide is for general information purposes only and does not constitute financial or mortgage advice. Always seek independent, regulated advice based on your individual circumstances.

Product availability, eligibility criteria, and terms may change. Information is correct as of August 2025.