Search Private Finance

phone email

Request a call back from an expert

    I consent to receive other communications from Private Finance.

    What our clients say

    What is an offset mortgage?

    With an offset mortgage, the balance of the savings held within your offset account is offset against your outstanding mortgage debt, reducing the amount of interest you pay on the mortgage.

    This will enable you to clear your mortgage more quickly and pay less interest in the long run, while retaining access to your savings in case of emergency. With most offset accounts you can choose to either have smaller monthly payments or a shorter overall term.

    What are the advantages of an offset mortgage?

    Offset mortgages offer several advantages that can make them an attractive option for certain borrowers.

    Introduced to the UK market in 2000, offset mortgages grew quickly in popularity in the beginning however, they have languished for many years after despite offering obvious advantages. They should logically be much more popular among more sophisticated borrowers, but suffer from a fatal marketing flaw: they sound complicated.

    Key advantages include:

    • Easy access to money

    An offset mortgage allows you to have instant access to your money when required. This can be a great option in volatile times, for example for business owners who need quick access to cash.

    • Save interest

    Borrowers can make their savings work harder by offsetting them against their mortgage, thus reducing the interest paid. The mortgage can be cleared more quickly and pay less interest in the long run

    • Retirement planning

    For those going through retirement planning, offset mortgages can remove any cash flows issues and allow there to be more control as to when assets are liquidised. The timings at which you liquidise your assets are very important and offset mortgages can reduce the risk of crystallising your cash at a point in time when stock markets and investments are down.

    What should I consider when taking out an offset mortgage?

    While offset mortgages offer several advantages, it’s important to consider their potential disadvantages before deciding if they are the right option for you.

    • Offset mortgages tend to have slightly higher interest rates compared to standard mortgages. However, the potential interest savings from offsetting your savings can often outweigh the higher interest rate, making it a cost-effective option for many borrowers. If you don’t have a significant amount of savings, you will not save much on the mortgage by offsetting, so you might be better off with a different mortgage deal with a lower interest rate.
    • You must also consider the potential saving you are making from the interest payable versus the interest you could be receiving from a savings account. Offset savings accounts do not offer a rate of interest as the benefit is in the reduction in mortgage interest. You would need to consider the benefit of a normal savings account versus an offset savings account.

    Not all lenders offer offset mortgages, which means your choice of lenders may be more limited. A mortgage specialist can help source the right offset mortgage for you. Your Private Finance consultant will explain offset mortgages in full to help you make an informed decision whether offset is right for you.

    Who are offset mortgages most suitable for?

    Is an offset mortgage for you? Offset mortgages are rarely promoted but offer concrete advantages that are worth checking out.

    Offset mortgages are suitable for people who have substantial savings. Those savings will not earn you interest if you offset them, but they will save you from paying interest at the mortgage rate, which is generally higher than the savings rate after tax. For higher-rate taxpayers, offsetting against a mortgage can prove particularly efficient.

    They are also of interest to individuals who have large annual bonuses as this can form part of an overall repayment strategy towards an interest-only mortgage.

    Offset mortgages are particularly appealing for self-employed clients who often save their taxes throughout the year and then pay their tax bill in January. The tax they are saving throughout the year can be used to offset their mortgage, thereby reducing their monthly mortgage payments or term of the mortgage.

    Speak with an expert now   | Speak with an expert now or Arrange a call back or

    Mortgage Tools and Resources

    With our online mortgage tools, find the information you need using our helpful guides, information on the best mortgage rates and handy mortgage calculators.

    Private Finance