Offset Mortgage FAQs
How does an offset mortgage work?
Your savings sit in a linked account and are subtracted from the mortgage balance whenever interest is calculated. £30,000 of savings against a £200,000 mortgage means interest on £170,000 only. The savings remain fully accessible · withdraw any time · but earn no interest while they offset.
Is offsetting better than a savings account?
Offsetting effectively earns your savings the mortgage rate, tax-free. At a 5% mortgage rate, a higher-rate taxpayer would need about 8.3% gross on ordinary savings to match · and from April 2027 savings tax rises to 42% for them, pushing the matching rate higher still. Only very cheap legacy mortgage rates flip the comparison.
What is the catch?
Offset deals typically price 0.1 to 0.4 percentage points above the equivalent standard mortgage, and fewer lenders offer them. The tax-free saving on your offset pot has to outweigh the premium paid across the whole loan · which is why offsets suit people with substantial cash (emergency funds, bonus savers, self-employed tax reserves).
Should I offset or just overpay?
Overpaying earns a similar saving at a usually cheaper base rate, but the money is locked into the house until you remortgage. Offsetting keeps the cash instantly accessible · that flexibility is exactly what the rate premium buys. Self-employed people often offset their tax reserve: it works for the mortgage all year and is still there for HMRC in January.
Keep payments level or reduce them?
Level payments repay more capital each month, shortening the term · usually the biggest total saving and what this calculator models. Choosing reduced payments frees monthly cash flow but keeps the full term. Most lenders let you switch between the two.
For informational purposes only · Not mortgage advice · Assumes savings stay constant, level payments, monthly interest calculation · Offset products may carry rate premiums and fees vs standard deals · From April 2027 savings interest tax rises to 22%/42%/47%