Offset Mortgage

With an offset mortgage, savings do not earn interest. Instead, they reduce the amount of the mortgage on which interest is charged.

For example, a borrower has a mortgage of 200,000 and savings of 30,000 in a linked account. They pay interest on only 170,000. The borrower can either keep paying the same monthly amount, so the mortgage is repaid faster, or pay a lower monthly amount.

Offset mortgages can be especially attractive for higher-rate taxpayers, because the saving on mortgage interest is not taxed, whereas interest earned on savings may be. They also suit people with large savings who want to keep them accessible, such as self-employed people setting aside money for tax bills.

Offset mortgages are available in the United Kingdom and Australia, where similar arrangements are often called offset accounts. They often carry slightly higher interest rates than standard mortgages, so they are most worthwhile when the borrower keeps a substantial savings balance. Borrowers can usually withdraw their savings at any time, although this increases the interest charged.