Finance glossary
Offset Mortgage
In simple terms
An offset mortgage links your savings to your mortgage. Your savings are “set against” the balance so you pay interest only on the difference — cutting your interest bill while keeping your savings available.
On this page
What does offset mortgage mean?
An offset mortgage links one or more savings (and sometimes current) accounts to your mortgage. Instead of earning interest on the savings, the balance is used to reduce — “offset” — the mortgage balance that interest is charged on.
You keep full access to your savings; they are not handed over to the lender. They simply sit in a linked account and lower the amount of mortgage you are charged interest on.
How an offset mortgage works
If you owe £200,000 and hold £30,000 in the linked savings account, you are charged interest as if you owed only £170,000. The more you keep in savings, the less interest you pay.
You can usually choose to keep your monthly payment the same — which clears the mortgage earlier — or reduce your monthly payment. Because you forgo the savings interest instead of paying tax on it, offsetting can be especially useful for higher-rate taxpayers.
How could this affect me?
Offsetting can save a meaningful amount of interest while keeping your savings within reach for emergencies — unlike overpaying, which locks the money into the property. It works best if you hold decent savings.
The trade-off is that offset mortgage rates are often a little higher than the cheapest standard deals, so the savings need to be large enough to make the maths work in your favour.
Example
Offsetting £30,000 of savings against a £200,000 mortgage at 5%:
| Mortgage balance | £200,000 |
|---|---|
| Linked savings | £30,000 |
| Balance interest is charged on | £170,000 |
| Interest at 5% without offset | £10,000 a year |
| Interest at 5% with offset | £8,500 a year |
| Interest saved | £1,500 a year |
Figures are illustrative and rounded. Your savings normally earn no interest while offset, and rates and terms vary by lender.
Things to watch out for
- Offset rates are often higher than the cheapest standard deals — the savings need to be big enough to make it worthwhile.
- Your linked savings earn no interest while they are offsetting the mortgage.
- If you spend down your savings, your interest saving falls and your payments may rise.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- MoneyHelper, Offset mortgages explained (opens in a new tab). Accessed 22 Aug 2026.