--- title: "Offset Mortgages" description: "Offset mortgages explained: savings set against the balance, interest charged on the difference, interest-only offsets, providers and the break-even." url: "https://mortgagelane.com/mortgages/offset-mortgages" site: "Mortgage Lane" collection: "mortgages" date: "2026-09-11" author: "Joseph Lane" category: "Mortgages" reviewed: "2026-10-08" reading_time: "16 min" byline: "Joseph Lane" author_credentials: "CeMAP · FCA authorised firm" language: "en-GB" robots: "index,follow" --- # Offset Mortgages Offset mortgages explained: savings set against the balance, interest charged on the difference, interest-only offsets, providers and the break-even. Offset mortgages explained: savings set against the balance, interest charged on the difference, interest-only offsets, providers and the break-even. [Offset mortgage](https://mortgagelane.com/definitions?term=offset-mortgage) Residential A residential mortgage linked to a savings account with the same lender, where interest is charged on the mortgage balance less the savings balance. The savings reduce interest instead of earning it. [Read the full definition of Offset mortgage](https://mortgagelane.com/definitions?term=offset-mortgage) ## Expert advice on Offset Mortgages Speak to a Mortgage Lane adviser about your options. ## In short Offset mortgage definition: an offset mortgage is a residential mortgage linked to a savings account with the same lender, on which interest is charged only on the mortgage balance minus the savings balance, so the savings reduce the interest paid instead of earning interest themselves, while remaining accessible to the borrower. ## What is an offset mortgage? **An offset mortgage charges interest only on the mortgage balance less the linked savings, so the savings reduce the interest paid instead of earning interest.** On a £200,000 mortgage with £40,000 in the linked account, interest is charged on £160,000. The £40,000 earns nothing but can be withdrawn under the account's terms, and withdrawing it raises the interest-bearing balance again. Offsets are offered on [capital repayment](https://mortgagelane.com/definitions#def-repayment-mortgage) and [interest-only](https://mortgagelane.com/definitions#def-interest-only-mortgage) bases, and some lenders offer [family offsets](https://mortgagelane.com/definitions#def-family-assisted-mortgage), where a relative's savings are linked instead of the borrower's. An offset mortgage in the UK on your own home is regulated residential lending under the Financial Conduct Authority's [MCOB](https://mortgagelane.com/definitions#def-mcob) rules. Offset savings generate no taxable interest: the benefit arrives as lower mortgage interest, which is not taxed ([gov.uk personal savings allowance](https://www.gov.uk/apply-tax-free-interest-on-savings)). ## Offset mortgage rates **Offset products usually carry a premium over equivalent non-offset products, so an offset pays where the savings balance is large enough that the interest saving exceeds the cost of the premium.** The arithmetic below shows where the break-even falls, comparing the offset rate on the net balance with the non-offset rate on the whole loan and allowing for the savings interest given up after tax. For an offset mortgage quote, get in touch with your mortgage balance, your typical savings balance and your tax rate. ## Offset mortgage criteria **Each offset provider sets its own premium, maximum loan-to-value and offset rules, so offset criteria vary between providers.** In our experience offset mortgages go up to 85% to 90% [loan-to-value](https://mortgagelane.com/definitions#def-loan-to-value), depending on the products available at the time, and residential interest-only offsets usually up to 75%. The lender's criteria, the valuation and the borrower's affordability decide the actual terms. ## Offset mortgage criteria *Offset mortgage criteria* | Criterion | Value | | --- | --- | | Structure | Mortgage linked to a savings account (and, with some lenders, current accounts) with the same lender; interest charged on mortgage balance less savings | | Savings | Earn no interest while offset; accessible on the account's terms; how much can be offset (at most the full balance) and any cap on the offset percentage are checked product by product | | Repayment type | Capital repayment or interest-only, subject to the lender's interest-only criteria; in our experience residential interest-only usually goes up to 75% LTV. See our interest only residential mortgages page | | Effect of offsetting | Either a lower monthly payment, or the same payment with a shorter term, at the borrower's election | | Family offset | A relative's savings linked to the borrower's mortgage with some lenders. See our family help mortgages page | | Rate types | Fixed and tracker offsets, by lender; the range available changes with the market | | Pricing | Usually a premium over equivalent non-offset products; its size varies by lender and product, and it sets the break-even savings balance | | Maximum LTV | In our experience up to 85% to 90% LTV, depending on the products available at the time; the lender's criteria and the valuation decide | | Drawdown and overpayment | Overpayments into the offset account are withdrawable; some products allow borrowing back of overpayments made to the mortgage itself | | Suitability | Can suit the self-employed and contractors holding tax reserves; bonus and commission earners; borrowers with lump sums they may need; higher-rate taxpayers whose savings interest would be taxed | | Tax | Offset savings generate no taxable interest; the benefit is untaxed lower mortgage interest | ## Types of offset mortgage ### Repayment offset mortgages The standard offset is a capital repayment mortgage with linked savings. The borrower chooses either a lower monthly payment (the offset reduces the interest element) or the same payment with the term shortening (the saved interest goes to capital). The term-reduction option clears the mortgage early without the savings being spent. Get in touch with your balance and savings for a repayment offset quote. ### Interest only offset mortgages An interest only offset mortgage charges interest only on the mortgage balance less the savings, with no capital repayment, so the monthly payment is the interest on the net balance alone. Where savings equal the mortgage, the payment is nil while the borrower keeps access to the cash. It can suit self-employed borrowers and business owners who hold large cash balances that rise and fall (tax reserves, working capital, sale proceeds awaiting reinvestment), and higher-rate taxpayers who would otherwise pay tax on savings interest. Lenders apply their interest-only criteria (minimum equity, income and a credible repayment strategy) on top of the offset terms; see [interest only residential mortgages](https://mortgagelane.com/mortgages/interest-only-residential-mortgages). Get in touch with your balance, typical cash holdings and repayment strategy for an interest-only offset. ### Family offset mortgages A family offset links a relative's savings to the borrower's mortgage, reducing the borrower's interest while the relative's money stays theirs: accessible on the product's terms, earning nothing while offset, and off the title. It is the offset version of family help and sits alongside springboard and gifted-deposit structures on our [family help mortgages](https://mortgagelane.com/mortgages/family-help-mortgages) page. Get in touch if a relative wants to help without giving the money away. ### Fixed rate and tracker offset mortgages Offsets are offered on fixed rates (payment certainty on the net balance) and on trackers, where the rate follows [Bank Rate](https://mortgagelane.com/definitions#def-bank-rate). The offset mechanics are the same; the rate choice follows the reasoning on [fixed term mortgages](https://mortgagelane.com/mortgages/fixed-term-mortgages) and [tracker mortgages](https://mortgagelane.com/mortgages/tracker-mortgages). We can compare a fixed and a tracker offset for you. ### Offset mortgages for the self-employed and contractors Cash that arrives in lumps (invoice payments, retained profits, a tax reserve held for the [January and July Self Assessment payments](https://mortgagelane.com/mortgages/sole-trader-mortgages)) can sit in the linked account and cut mortgage interest until it is needed, then be withdrawn without penalty when the bill falls due. Contractor and self-employed income assessment is covered on [contractor mortgages](https://mortgagelane.com/mortgages/contractor-mortgages) and [self-employed mortgages](https://mortgagelane.com/mortgages/self-employed-mortgages). Get in touch with your cash-flow pattern. ### Offset mortgages for bonus and commission earners A bonus offset against the mortgage for the months before it is spent or invested saves interest at the mortgage rate for that period, with no loss of access. It works the same way as the tax reserve, on a different calendar. Get in touch with your bonus timing. ### Offset versus overpaying Overpaying reduces the balance permanently and, within a fixed term, is usually limited to an annual allowance; offsetting reduces the interest-bearing balance in a way that can be reversed, with no allowance limit. The cost of an offset is its rate premium, while overpaid money can no longer be drawn back, so an offset can suit savings the borrower may need again. Get in touch to compare overpaying with offsetting on your figures. For a higher-rate taxpayer whose savings interest is taxed at 40%, a savings account needs a gross rate of more than about 8.67% to match the tax-free saving an offset gives at an illustrative 5.2% mortgage rate. ## Offset mortgage providers **Offset mortgages are offered by some building societies and some banks, though not by every lender.** Each provider sets its own offset premium, maximum loan-to-value, interest-only criteria, family-offset availability and rules on linked current accounts. The differences between providers decide whether an offset pays for a given borrower: a lower premium lowers the break-even savings balance, a family-offset option changes who can supply the savings, and an interest-only offset needs the lender's interest-only criteria to fit. Because the terms differ, an offset mortgage quote is produced by comparing the providers on the borrower's own balance and savings rather than from a headline table. ## How an offset mortgage is arranged 1. We start with the figures: the mortgage balance, your typical and minimum savings balance, your tax rate and whether the savings will be needed. These are the inputs to the break-even. 2. We compare the offset providers on premium, maximum loan-to-value, interest-only availability and family-offset option, and produce the quote on the net balance. 3. The application is a standard residential one, with interest-only criteria where the offset is interest-only and the linked savings account opened with the mortgage. 4. At completion the savings move into the linked account and you choose payment reduction or term reduction; after that, withdrawals and deposits follow your cash flow. ## The offset arithmetic **An offset pays when the interest it saves is more than the cost of its premium and the after-tax interest the savings would have earned.** ### Step 1. What the savings save The figures for an illustrative £200,000 interest-only mortgage at the illustrative 5.2% rate used across our guides, with £40,000 in the linked account, are in the table at the end of this section: interest of £866.67 a month on the whole £200,000 falls to £693.33 on the net £160,000, a saving of £173.33 a month. *Illustrative arithmetic on hypothetical figures; 5.2% is not a product rate. Not an offer of finance.* The £40,000 saves £2,080 a year at the mortgage rate, tax-free because it is interest not paid rather than interest earned, while remaining available. ### Step 2. What the savings would have earned In a savings account the same £40,000 would earn interest at the savings rate, taxed above the personal savings allowance at the borrower's marginal rate. For a higher-rate taxpayer, the savings account's after-tax return has to beat 5.2% to match the offset's tax-free 5.2% saving, which at 40% tax means a gross savings rate above about 8.67%. That is why offsets favour higher-rate taxpayers and why the comparison is always made after tax. ### Step 3. What the offset costs The offset product usually carries a premium over the equivalent non-offset product. The premium is charged on the balance that still bears interest, here the net £160,000, so a premium of p percentage points costs £1,600 × p a year. Before the savings interest given up in Step 2, the offset pays where £2,080 (the saving in Step 1) exceeds that cost, so at this savings balance the break-even premium is 1.3 percentage points, and at a smaller savings balance it is lower. Turned round, for a given premium the break-even savings balance is the balance at which the saving equals the premium's cost; the calculator below works it out. ### Step 4. The interest-only offset at the limit Where offset savings equal the interest-only mortgage balance, the monthly payment is nil and the cash remains available, which is how a business owner can hold working capital against the mortgage. The lender's interest-only criteria (equity, income, repayment strategy) still apply, because the capital is still owed. ### Step 5. Payment reduction or term reduction On a repayment offset the borrower elects either a lower payment (the saving reduces the monthly interest) or the same payment with a shorter term (the saving repays capital). Holding the payment and shortening the term compounds the benefit; taking the lower payment improves monthly cash flow. Whether the election can be changed later depends on the lender. The result for a borrower depends on the savings balance kept in the account, their tax position, the provider (and its premium), the repayment type and the payment-or-term election. For the interest-only criteria an offset must meet, see [interest only residential mortgages](https://mortgagelane.com/mortgages/interest-only-residential-mortgages); for family offsets, [family help mortgages](https://mortgagelane.com/mortgages/family-help-mortgages); and for the investor equivalent, [revolving credit mortgages](https://mortgagelane.com/mortgages/revolving-credit-mortgages). ## Interest with and without the offset *Interest with and without the offset* | Item | Figure | | --- | --- | | Interest on the whole £200,000 | £866.67 a month | | Interest on the net £160,000 | £693.33 a month | | Saving from the offset | £173.33 a month, £2,080 a year | ## Related topics - [2026](https://mortgagelane.com/mortgages/interest-only-residential-mortgages)Mortgage[Interest Only Residential Mortgages](https://mortgagelane.com/mortgages/interest-only-residential-mortgages)Interest only residential mortgages: the repayment strategy lenders require, equity and income criteria, part-and-part, offsets and retirement options.[Read more about Interest Only Residential Mortgages](https://mortgagelane.com/mortgages/interest-only-residential-mortgages) - [2026](https://mortgagelane.com/mortgages/variable-rate-mortgages)Mortgage[Variable Rate Mortgages](https://mortgagelane.com/mortgages/variable-rate-mortgages)Variable rate mortgages explained: standard variable, discounted variable, tracker and capped rates, with tracker vs variable and fixed vs variable compared.[Read more about Variable Rate Mortgages](https://mortgagelane.com/mortgages/variable-rate-mortgages) - [2026](https://mortgagelane.com/mortgages/tracker-mortgages)Mortgage[Tracker Mortgages](https://mortgagelane.com/mortgages/tracker-mortgages)Tracker mortgages explained: Bank Rate plus a fixed margin, two-year, five-year and lifetime trackers, collars, switch-to-fix options and tracker vs fixed.[Read more about Tracker Mortgages](https://mortgagelane.com/mortgages/tracker-mortgages) ## Offset mortgage calculator Compares an offset product with a standard one on the same balance, after the savings interest you would give up. Rates are illustrations: use your quotes. Explore your borrowing Start again Enter your figures in pounds. Your estimate updates as you go. Indicative maximum loan \- Enter your figures to see an estimate. Loan to value [Discuss your options](https://mortgagelane.com/contact) Indicative estimate only, subject to lender criteria, affordability and valuation. Offset savings earn no interest. This is not a mortgage offer. Your home may be repossessed if you do not keep up repayments on your mortgage. ## Frequently asked questions about offset mortgages **Q: What is an offset mortgage?** faq-id: what-is-an-offset-mortgage-2 An offset mortgage links your savings to your mortgage balance, and interest is charged on the net amount. That can reduce the interest you pay while the savings stay accessible. **Q: How does an offset mortgage work?** faq-id: how-does-an-offset-mortgage-work An offset mortgage nets the balance of a linked savings account against the mortgage balance before interest is calculated each day or month, so the borrower pays interest on the difference. The savings earn no interest but can be withdrawn under the account's terms, and withdrawing them raises the interest-bearing balance again. **Q: What is an interest only offset mortgage?** faq-id: what-is-an-interest-only-offset-mortgage An interest only offset mortgage charges interest only on the mortgage balance less the linked savings, with no capital repayment, so the monthly payment is the interest on the net balance and falls to nil where savings equal the mortgage. It can suit self-employed borrowers and business owners holding large cash balances, subject to the lender's interest-only criteria. **Q: Is an offset mortgage worth it?** faq-id: is-an-offset-mortgage-worth-it An offset mortgage is worth it where the interest saved on the offset savings is more than the cost of the premium the offset product carries, after the savings interest given up. That depends on the savings balance, the premium and the borrower's tax rate: higher-rate taxpayers with large or fluctuating savings are more likely to benefit, and borrowers with small savings less likely. **Q: Do offset savings earn interest?** faq-id: do-offset-savings-earn-interest Offset savings do not earn interest. Their benefit is the mortgage interest they save, at the mortgage rate on the offset balance, which is not taxed because it is interest not paid rather than interest earned. For a higher-rate taxpayer that untaxed saving can be worth more than the after-tax return on a savings account. **Q: Can I withdraw my offset savings?** faq-id: can-i-withdraw-my-offset-savings You can withdraw offset savings under the linked account's terms, and a withdrawal simply increases the mortgage balance on which interest is charged. Keeping access to the money is what distinguishes offsetting from overpaying. **Q: Who offers offset mortgages in the UK?** faq-id: who-offers-offset-mortgages-in-the-uk Offset mortgages in the UK are offered by some building societies and some banks, though not by every lender, and each provider sets its own offset premium, maximum loan-to-value, interest-only criteria and family-offset option. The differences decide whether the offset pays, so we compare providers on the borrower's own figures. **Q: How do I get an offset mortgage quote?** faq-id: how-do-i-get-an-offset-mortgage-quote An offset mortgage quote is produced by comparing the offset providers on the borrower's mortgage balance, typical savings balance and tax rate: the interest on the net balance under each product, the premium each carries and the break-even savings balance. We produce the quote from current rates when you get in touch. **Q: Is an offset mortgage better than overpaying?** faq-id: is-an-offset-mortgage-better-than-overpaying An offset can suit borrowers who may need the money back, because offset savings stay accessible and are not limited by an overpayment allowance, while overpayments reduce the balance permanently. Borrowers who will not need the cash back avoid the offset premium by overpaying instead. **Q: What is a family offset mortgage?** faq-id: what-is-a-family-offset-mortgage A family offset mortgage holds a family member's savings with the lender and sets them against the buyer's mortgage balance, so interest is charged only on the difference and the buyer's monthly cost falls. The savings remain the family member's and are accessible subject to the product's terms, but earn no interest while offset. **Q: Are offset mortgage rates higher?** faq-id: are-offset-mortgage-rates-higher Offset mortgage rates are usually higher than equivalent non-offset products, by a premium charged for the facility, so an offset pays only where the interest saved on the savings balance is more than the cost of that premium. The premium and the borrower's savings balance together set the break-even. **Q: Can I get a fixed rate offset mortgage?** faq-id: can-i-get-a-fixed-rate-offset-mortgage You can get a fixed rate offset mortgage from providers that offer offsets on fixed rates, giving payment certainty on the net balance for the fixed term; tracker offsets, whose rate follows Bank Rate, are offered too. The offset mechanics are the same on either rate type. **Q: Does an offset mortgage reduce my payment or my term?** faq-id: does-an-offset-mortgage-reduce-my-payment-or-my-term An offset mortgage reduces either the monthly payment or the term, at the borrower's election. Taking the saving as a lower payment improves monthly cash flow, while holding the payment and letting the saving repay capital shortens the term and compounds the benefit. Whether the election can be changed later depends on the lender. **Q: Is offset mortgage interest saved taxable?** faq-id: is-offset-mortgage-interest-saved-taxable Interest saved through an offset mortgage is not taxable, because it is mortgage interest not charged rather than savings interest earned. That is the offset's advantage over a savings account for taxpayers above the personal savings allowance: offset savings generate no interest and therefore no tax. **Q: Can the self-employed use an offset mortgage for a tax reserve?** faq-id: can-the-self-employed-use-an-offset-mortgage-for-a-tax-reserve The self-employed can use an offset mortgage to hold their tax reserve, keeping the money set aside for the January and July Self Assessment payments in the linked account, where it reduces mortgage interest until it is paid to [HM Revenue and Customs](https://mortgagelane.com/definitions#def-hm-revenue-and-customs). The reserve stays accessible for the payment dates. **Q: What is the maximum I can offset?** faq-id: what-is-the-maximum-i-can-offset An offset can at most match the full mortgage balance, at which point the interest charged falls to nil while the capital is still owed. Whether a product lets savings offset up to the full balance or caps the offset percentage is set product by product. Savings above the mortgage balance bring no further benefit and may earn more elsewhere. **Q: Can I have an offset mortgage on a buy to let property?** faq-id: can-i-have-an-offset-mortgage-on-a-buy-to-let-property An offset on a buy to let property depends on whether a lender offers one for the case. Landlords wanting to reduce interest with cash balances can use overpayments within the allowance or, for a portfolio, a revolving credit facility secured on the properties. **Q: What is the difference between an offset mortgage and a revolving credit facility?** faq-id: what-is-the-difference-between-an-offset-mortgage-and-a-revolving-credit-facility An offset mortgage sets a borrower's savings against a home loan balance to reduce interest while keeping the savings accessible, whereas a [revolving credit facility](https://mortgagelane.com/definitions#def-revolving-credit-facility) lets an investor draw and repay against property security up to a limit. The offset is regulated residential lending; the revolving facility is usually business lending on investment property. **Q: What is an offset mortgage calculator?** faq-id: what-is-an-offset-mortgage-calculator Our offset mortgage calculator works out the interest charged on the mortgage balance less the savings, the monthly saving against a standard product, the after-tax savings interest given up, the net benefit and the break-even savings balance at which the offset premium is covered. It also shows the number of years cut from the term if you keep the payment, the loan-to-value and a guide to headroom on income, capped at 90% loan to value. Provider terms then decide the actual outcome. **Q: How long does an offset mortgage take to arrange?** faq-id: how-long-does-an-offset-mortgage-take-to-arrange An offset mortgage takes as long as a standard residential mortgage: the time from application to offer depends on the lender and the case, and the linked savings account is opened alongside the mortgage. The payment-or-term election is made at completion, and the providers are compared on the borrower's own figures before application. ## Talk it through with an adviser Let’s talk property finance ## Contact us **Call our team:** [+44 333 231 8206](tel:+443332318206) **Email us:** [enquiries@mortgagelane.com](mailto:enquiries@mortgagelane.com) **Opening hours:** Monday to Friday, 9am–6pm Closed Saturday and Sunday Your enquiry goes to our team, who will get in touch to discuss your next steps. Fields marked are required. First name Last name Email Phone What can we help with? Residential mortgage Remortgage Buy to let Bridging finance Commercial Something else Tell us about your enquiry I am happy to receive occasional mortgage news and rate updates. Send enquiry We use your details to respond to your enquiry and, if you opt in, send updates. See our [privacy policy](https://mortgagelane.com/privacy-policy). Published: 2026-09-11 Last reviewed: 2026-10-08 Source: https://mortgagelane.com/mortgages/offset-mortgages