What is an Offset Mortgage?
An offset mortgage allows you to link your mortgage and your savings together to reduce the amount of interest you are charged. In return for not receiving any interest on their savings, the homeowner pays a lower rate of interest on their mortgage: an arrangement known as ‘offsetting’.
Lenders require both the mortgage and the savings account to be held with the same provider for Offset Mortgages.
Example-
If you have £15,000 in savings and a £100,000 mortgage, you would only pay interest on the outstanding balance — i.e. £85,000. As the rates of interest charged on mortgages are usually higher than those paid on savings accounts, offsetting can be more financially advantageous to the borrower.
One thing to keep in mind is that when you offset your savings, you won’t be able to earn interest on them. In addition to reducing the interest on your mortgage, you may pay less income tax simply because your savings are not earning any interest.
