With an offset mortgage you can potentially reduce the interest you pay by offsetting a credit balance — your savings — against your mortgage debt.
How it works
Your unspent income or savings are offset against your outstanding mortgage, so you only pay interest on the net amount owed. For example, on a £150,000 mortgage with £10,000 in a linked savings or current account, interest is charged on the net £140,000. The offset account must be held with the same provider as your mortgage. Some lenders use a single current-account mortgage; others use multiple linked accounts — but the offsetting principle is the same.
Drawing down and discipline
A borrowing limit usually applies, and you can often redraw against it as the mortgage is paid down. Limits may reduce over the term to lock in repayments. The catch: undisciplined borrowers who effectively 'withdraw' previous payments can run into difficulty.
Is it right for you?
With good management and discipline, an offset mortgage can deliver significant interest savings and help you repay earlier. The key is making sure it suits the way you manage your money.
Important — please note
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. Please note that some mortgages, such as commercial buy-to-lets, are not regulated by the FCA.
This article is general guidance, not personal advice. For a recommendation based on your own circumstances, please get in touch.