Offset Mortgages

Interest rates

With an offset mortgage, your main current and/or savings accounts are linked to your mortgage and are usually held with the mortgage lender. Each month, the amount you owe on your mortgage is reduced by the amount in these accounts before working out the interest due on the mortgage. This means that as your current account and savings balance go up, you will pay less mortgage interest. As they go down, you will pay more. Linked accounts that are used to reduce the mortgage interest payments do not attract any interest.

Advantages

  • These products allow flexibility and can encourage you to save.
  • Mortgage payments can be reduced as the level of savings increase, or you may be able to continue paying the same and pay your mortgage off early.
  • You usually pay tax on your savings. However, if your savings are automatically used to offset your mortgage, you won’t pay income tax on these savings- this is particularly beneficial if you’re a higher rate taxpayer.

Disadvantages

  • These types of mortgages are normally only suitable if you have savings over a certain level.