What Is An Offset Mortgage?

An Offset mortgage is essentially a mortgage which is linked to a savings account. This offset account will allow you to offset any savings against your mortgage, in effect temporarily reducing the capital owed to the mortgage lender.

In essence what happens is that you don't earn interest on your savings but you only pay interest on your mortgage capital less your savings. For example if you had a mortgage of £150,000 and savings of £25,000 an offset mortgage would use the savings from the linked account to reduce your mortgage.

In this scenario, you would only pay the mortgage lender interest on £125,000 thus saving interest on £25,000 of your debt. As the borrowing interest rate is usually higher than the savings interest rate you could benefit greatly.

Obviously the more you leave in your savings, the greater the benefit to your mortgage.

What Benefits Do Offset Mortgages Offer?

The biggest benefit of an offset mortgage is that the more money you are able to put into your linked savings account, the less interest you pay on your mortgage, thus reducing the term of the mortgage by paying it off quicker.

Obviously offset mortgages are better for those with hefty savings or perhaps people who are able to introduce large sums of cash into the account at regular intervals, company bonuses for example. Smaller savings can also make a difference though.

What Downsides Are There Do Offset Mortgages?

The main thing to watch out for is the interest rate. Often the interest rate of an offset mortgage is higher than that of some other types of mortgage. But as their popularity and availability grows in the UK this may change.

Look at the comparison tables above to help you compare offset mortgages directly from ZeroPercentInterest.com

If you are in any doubt about your mortgage it is always best to consult with an independent financial advisor before committing to the mortgage.