What is an offset mortgage?

Offsetting uses your savings to help you pay less for your mortgage. Here’s how it works.

Publication date: 8 October 2025
Reading time: 3 minutes

An offset mortgage is one that’s linked to a savings (or other interest-paying) account.

The interest that’s normally earned on your savings is used to ‘offset’ the interest charged on your mortgage.

The more you have saved, the less interest you’ll pay on the mortgage.

It doesn’t reduce the capital on your mortgage – just the interest. This means that if you have an interest-only mortgage, offsetting will reduce your payments. If you have a capital and interest repayment mortgage, your payment remains the same but more is put towards reducing capital (depending on the amount offset), meaning your mortgage is repaid much faster.

Your lender calculates your mortgage interest daily, comparing what you owe on your mortgage to what’s in your savings account and charging you interest on the difference.

Benefits of offsetting

You could save significant mortgage interest, especially when mortgage debit interest rates are higher than savings credit interest rates (as they often are).
You can potentially repay your mortgage more quickly.
You can also overpay without penalty if you’re on capital and interest repayment.
Offsetting allows you to keep your savings intact while borrowing, potentially leaving a large lump sum available for other ventures.
If you’re fully offset, you aren’t affected by mortgage interest rates going up.
There’s no early repayment charge (ERC) if you want to pay off your balance early. There may be some administrative costs but these will be relatively small.
If you have significant savings, you’ll usually have to pay tax on any interest you earn on them. If you use those savings to offset your mortgage, you don’t earn any interest, therefore don’t have to pay tax.
You can still have other savings accounts that earn interest – just not the one that’s linked to the mortgage

Drawbacks

Offsetting works best if you have a similar level of savings to what you owe on your mortgage, so a potentially substantial amount of money.
You don’t earn any interest on those savings, even if there’s more in your account than you need to offset your mortgage. In that case you may be better off investing the excess or saving it in another account.
What you pay for your mortgage may go up if you make a withdrawal from your linked savings account.
You don’t benefit from savings rates going up.

Full offsetting

Homebuyers pointing to property listing through estate agent's window

This is when you have enough in your linked savings account to cover what you owe on your mortgage. In this case you won’t pay any interest on your mortgage at all.

A simple example

Sarah takes out a mortgage of £350,000 and offsets it against £350,000 she has in her savings account. She won’t pay any interest on her mortgage.

Partial offsetting

Girl with laptop on her knees on the sofa

This is when you’re borrowing more than you have saved, but you still offset some of the mortgage interest you’d otherwise have to pay.

Example

Sam takes out a mortgage of £250,000 and has £50,000 in his savings. He will pay interest on the £200,000, having offset the other £50k.

Multi part mortgages

If you need to borrow a significant amount of money for your mortgage, but don’t have enough to offset it fully, some lenders offer multi-part mortgages to help suit your circumstances.

This could allow you to fully offset one part, and take out a different mortgage product to fund the other part.

Find out more about this and our other mortgage products.

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