Offset Mortgages

What is an offset mortgage?

An offset mortgage is where the borrower utilises the balance of their bank account to reduce the amount of interest payable on the mortgage held with the lender.

If the borrower has a £100,000 mortgage, but also has £20,000 in the bank, then they will only pay interest on £80,000 of the mortgage.

The £20,000 is "offset" against the mortgage, and as a result no interest is payable on the savings, which means no tax is payable on the zero interest payments. Its a tax efficient method of paying mortgage interest.

As a rule of thumb, an offset mortgage is only of benefit where the borrower holds "a significant savings balance". Historically this has been because the interest rates available on other types of mortgages have been lower i.e. heavily discounted  mortgages for the first year or two, as an example..

However, at the time of publishing this web page one bank was offering an interest rate of below 3% on their offset mortgages which compares favourably with other options available.

No information on this website is intended to constitute advice. This site contains a summary of the information relating to the products and is not intended to promote any specific mortgage or insurance product or provide mortgage or insurance advice. It is for information purposes only.