Published 3 January 2024 · Last reviewed 1 May 2026
Understanding Offset Mortgage Products: A Guide to Making Your Money Work Smarter
The generic way offset mortgage facilities work is simple. A savings account (called an Offset Deposit Account) will be set up alongside your mortgage.
Any savings you have in your Offset Deposit Account will now “offset” against your mortgage.
Like any other savings account, you can deposit or withdraw funds anytime. While you won’t earn any interest on the savings in your Offset Deposit Account, you won’t be charged any interest on the same amount of money in your mortgage.
So, by linking your mortgage with your Offset Deposit Account, it will take the balance of your savings away from the outstanding balance of your mortgage and only charge you interest on the net amount.
The exact workings of the scheme will be specific to the mortgage lender, so these should be discussed with your professional mortgage adviser, such as Niche Advice.
You should also consult with professionals from a Tax Advice and Financial Planning perspective.
Target market
New and existing Mortgage holders with the following, but not exhaustive characteristics:
- Regular savers
- Those with inheritance
- Redundancy, back in employment
- Bonus based income
- Divorce settlement
- Bonds that have or will mature
- Anyone with regular surplus money left in your account at the end of the month
Other benefits
- It can be tax efficient, but you should seek professional Tax Advice.
- Your money is not locked away – easy access is to funds if needed!
Choices
There are two main forms of using the Offset either a Lump Sum Deposit or Regular Deposits. They can be used in tandem. Regular savings do not have to be put in every month, but it’s a good habit to get into.
You have the option of applying the benefit to reduce your mortgage payments or decrease the term of the mortgage. The term reduction has the biggest impact as borrowing money over a longer period adds to the overall cost.
How does it look in practice?
These examples are for illustrative purposes only and should not be relied on to be exact.
Every case needs to be discussed and approved individually.
Lump Sum Deposit
Example 1: Depositing your £35,000 Offset savings from day 1 of the mortgage.
Reduced term option: You’ll save £164,881.54 and reduce the term of your mortgage by 4 years and 11 months. Reduced payment option: You’ll save £69,141.34 with reduced monthly payments.
Example 2: Depositing your £50,000 Offset savings from day 1 of the mortgage.
Reduced term option: You’ll save £211,295.70 in interest and reduce the term of your mortgage by 6 years and 4 months. Reduced payment option: You’ll save £97,700.64 with reduced monthly payments. These are displayed in the diagram below.
Regular Deposits
Example 3: Deposit £100 every month into your offset savings from day 1 of the mortgage.
Reduced term option: You’ll save £62,910.49 in interest and reduce the term of your mortgage by 1 years and 10 months. Reduced payment option: You’ll save £31,286.40 with reduced monthly payments.
Example 4: Deposit £100 every month into your offset savings from day 1 of the mortgage and overpay your mortgage account by £50 a month.
Reduced term option: You’ll save £87,380.10 in interest and reduce the term of your mortgage by 3 years. Reduced payment option: You’ll save £41,016.76 with reduced monthly payments. These are displayed in the diagram below.
Lump Sum with Regular Deposits
Example 5: Depositing £50,000 in a lump sum day 1, £200 every month into your Offset savings from day 1 of the mortgage, and overpaying your Mortgage Account by £100 a month.
Reduced term option: You’ll save £268,497.63 and reduce the term of your mortgage by 8 years and 8 months. Reduced payment option: You’ll save £166,946.61 with reduced monthly payments. These are displayed in the diagram below.
Summary Table – Reduced Term
Summary Table – Reduced Monthly Payments
Frequently Asked Questions on Offset Mortgages
These are generic answers and can vary from lender to lender so you should speak to your professional Mortgage Adviser.
[toggle title=” Do I need to transfer a lump sum into my Offset Deposit Account to benefit from the scheme?”] No, you can also benefit by saving regularly.[/toggle]
[toggle title=” What happens to my Offset Deposit Account once my mortgage has been fully paid off?”] The provider will normally offer a different account to place your savings in on request.[/toggle]
[toggle title=” Can you have a split repayment mortgage i.e. part capital and interest and part interest only.”] This is unlikely to be supported by the lender’s systems.[/toggle]
[toggle title=” Can I access the savings in my Offset Deposit Account?”]Yes, this is normally easy to access.[/toggle]
[toggle title=” Are Offset Deposit Accounts tax efficient?”] The lenders do not pay interest on the savings; instead, the benefit is used towards the mortgage payments. So, income tax should not occur, but you will need to discuss this fully with a professional Tax Adviser.[/toggle]
[toggle title=” How do I calculate the potential savings with an offset mortgage?”] The exact formulas will vary between Lenders, but most calculate the interest on a daily basis at a specified or the product rate, then apply the savings to the following month. It is important to remember you are only “Offsetting” the mortgage interest so if you have a “Repayment Mortgage” you still need to service the capital.[/toggle]
[toggle title=” How do I qualify for an offset mortgage?”] The rules are very similar to a normal mortgage, i.e. you are typically looking at 4 to 4.5 times your annual income. The only real difference is you normally need a minimum 10% as a deposit rather than 5%. So if you were to buy at £350,000, you would need to put in £35,000.
To understand the full technicalities, I would recommend you speak to a professional Mortgage Broker. [/toggle]
[toggle title=” Can I switch to an offset mortgage from my current mortgage?”] Normally, this would involve a remortgage to a different lender with the associated underwriting for new customers and a legal process. [/toggle]
[toggle title=” Are there any downsides to an offset mortgage?”] There are fewer mortgage providers, and the products are usually priced higher for the extra functionality. Once you have moved, then remortgaging can be more of an upheaval if the attached Offset Account is being used as a “current account”, as you will need to transfer your bills across. [/toggle]
[toggle title=” Is an offset mortgage the right option for me?”] This needs to be discussed with a professional Mortgage Broker, but in short, to get the maximum benefit you need to have meaningful regular or lump sum savings. [/toggle]