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How an Offset mortgage works
An Offset mortgage allows you to reduce your monthly mortgage payments or reduce the term of your mortgage, saving you money in interest payments. Learn more about an Offset mortgage.
An Offset mortgage works in a similar way to a standard mortgage. However, it has an additional feature known as an Offset Saver savings account. This savings account is linked to the mortgage. The amount of money in the Offset Saver savings account is deducted from the mortgage on which interest is charged.
You can choose to offset your savings to either reduce your monthly payments or reduce the term of your mortgage.
Our simple to use Offset mortgage calculator can help you find out how you savings can reduce your mortgage term or monthly mortgage payments.
How offsetting works
If you borrowed £200,000 and held £40,000 in our Offset Saver account, we will only charge you the interest due on £160,000. By making consistent monthly payments, you can pay off your mortgage faster.
As another option, you can choose to take advantage of reduced monthly payments. This won’t pay off your mortgage any quicker, but will make your monthly mortgage payments lower.
You have the option to overpay your mortgage regularly each month or make occasional additional payments. You can then use this extra money to reduce the amount of your future payments.
You won’t earn interest on the Offset Saver account while it's linked to the mortgage.
Offset mortgage options
We have two offset mortgage options, allowing you to either:
- reduce the term of your mortgage or
- reduce your monthly mortgage payments
Option 1 - Term reduction (only available for repayment mortgages)
With this option, your offset savings help you to pay your mortgage off sooner. Offsetting does not affect your monthly mortgage payments. However, it does assist in saving on interest and paying off a larger portion of your mortgage each month. Your mortgage balance should reduce faster, and you may be able to pay your mortgage off early.
In this example, the mortgage will be repaid four years earlier, saving you 48 payments of £758. In total that is £36,402 less to repay. Plus, unlike a regular savings account, you pay no tax on the money held in an offset account. The future tax treatment of offset savings accounts may vary.
Mortgage amount | £200,000 |
Offset Saver account | £40,000 |
Mortgage rate | 2.19% |
Term | 30 years |
Payment | £758.39 |
Repaid early after 26 years! |
Option 2 - Payment reduction
This option allows you to benefit from lower monthly mortgage payments, but you won’t pay off your mortgage any faster. Interest saved each month will be used to reduce the amount of your next month’s mortgage payment. The more savings you offset, the lower your monthly payment will be.
Using your savings to lower monthly payments won't decrease your mortgage balance or remaining mortgage term faster than if you were on a traditional mortgage.
Payment reduction summary
With an Offset Saver account | Without an Offset Saver account | |
Mortgage amount | £200,000 | £200,000 |
Offset Saver amount | £40,000 (20%) | £0 |
Mortgage rate | 2.19% | 2.19% |
Term | 30 years (Max 40 years) | 30 years (Max 40 years) |
Payment | £685.39 | £758.39 |
Monthly saving | £73.00 | |
Repaid after | 30 years | 30 years |
Try our Offset mortgage calculator which will show you the difference
between term reduction or payment reduction to your overall mortgage when you offset your savings with our offset mortgage.
The above diagrams use interest rates which are for illustrative purposes only.
Frequently asked questions
View our full list of FAQs for more information here.
Representative example
Offset mortgage brochure
Find out more about our Offset mortgage and how it can work for you.
Do you need our help?
If you have questions or need our help please contact our friendly New Business Team.