Offset mortgages

What is an offset mortgage?

If you hold money in a savings account, you could use it to reduce the cost of your monthly mortgage repayments. Let’s look at how this works:

1. You take out an offset mortgage.
2. The offset mortgage is linked to one of your savings accounts.
3. The value of your savings is used to lower the amount of interest you pay on your mortgage each month.
4. For the duration of the mortgage, you won’t earn interest on the money in your linked savings account.

Although an offset mortgage reduces the amount of interest you pay on your mortgage loan, it's not the best option for everyone. And remember that if you take out a mortgage and don’t keep up with payments, you could lose your home.

How do offset mortgages work?

Offset mortgages use the amount of money in your savings account to offset the amount you owe your mortgage lender.

The lender subtracts the amount in your linked savings account from the amount you owe them. You then pay interest on what’s left. Here’s an example:

• You could have a £200,000 mortgage and £30,000 in your linked savings account.
• With an offset mortgage, you would pay interest on £170,000 (which is what you get when you subtract £30,000 from £200,000).
• With an interest rate of 4% and a 25-year mortgage term, you would pay £897 per month. This is £159 less than if you had a standard mortgage.

What are the pros and cons of an offset mortgage?

If you have lots of money saved up and it's not earning much interest, it could make sense to offset your mortgage and reduce your interest payments. However, there are lots of pros and cons to weigh up first.

Benefits of an offset mortgage

• You will pay less monthly interest than with a standard repayment mortgage.
• Offset mortgage interest rates can be higher than savings rates. Therefore, it’s possible to save more in interest than you would earn in savings.
• You will not pay any tax on the interest that you save.
• You can still add to and withdraw from your savings account (subject to the provider’s T&Cs). Adding money could lower your interest rate further as there's more to offset  your mortgage.

Drawbacks of an offset mortgage

• Your savings won’t earn interest while they’re being used for an offset mortgage.
• If you withdraw money from your linked savings account, this could increase the mortgage interest you pay each month.
• The interest rates on offset mortgages can be higher than on standard repayment mortgages.
• Before you make any decisions, it’s best to speak to a mortgage expert – like the ones available through Saga Mortgages. We partner with Tembo, who are an award-winning digital mortgage broker.
• Their friendly experts can discuss your options and help you work out what’s right for you. If you choose to proceed, they can also help you find the best deal available.

What’s a family offset mortgage? 

Family offset mortgages are also known as family springboard mortgages or Savings as Security mortgages. Instead of linking your savings account to your mortgage, you link a loved one’s savings account.

A family member, such as a parent or grandparent, acts as a guarantor. This means they use their savings as security for your mortgage. If you want to get on the ladder sooner and don’t have enough money saved up, this could be an option to consider.

There are other family support options you can explore with Saga Mortgages.

Which lenders provide offset mortgages?

There’s a range of banks and building societies that offer offset mortgages, but their eligibility criteria can vary. This means that although one lender might accept your application, another may turn it down.

You can get a clearer picture of your options by chatting to a mortgage expert. Through Saga Mortgages, you can discuss your needs and find out which offset mortgages you might be eligible for.

What's more, our online fact find scans over 100 lenders and 20,000 mortgage products to find a deal that could work for you. You’ll get to know your potential eligibility too, so you won’t waste time making unsuccessful applications.