Mortgage guide
Offset Mortgages Explained
Understand how offset mortgages work, when they may save interest, and what to compare before choosing one.
Read with the calculator nearby
Use this guide to frame the decision, then model the numbers.
OverPayWise guides explain the trade-offs behind calculator outputs so you can compare scenarios more confidently.
View calculatorsAn offset mortgage links savings to your mortgage balance. Instead of earning normal savings interest, your savings reduce the mortgage balance on which interest is charged.
Offset mortgages can be useful for borrowers with meaningful cash savings who want flexibility, but they are not automatically better than a standard mortgage plus a separate savings account.
How An Offset Mortgage Works
If you have a mortgage balance of 250,000 and linked savings of 30,000, interest may be charged as if the mortgage balance were 220,000. The exact mechanics depend on the lender.
What To Compare
- The offset mortgage interest rate
- The rate available on a normal mortgage
- Savings interest you would give up
- Product fees and account fees
- How much cash you expect to keep in savings
- Whether you need easy access to that cash
Offset Mortgage Vs Overpaying
Overpaying can reduce the actual mortgage balance, while offsetting can reduce interest without permanently giving up access to savings. The right comparison depends on flexibility, rates, and lender rules.
When An Offset May Not Be Worth It
If the offset rate or fees are meaningfully higher than a standard mortgage, the interest saving from your savings balance may not cover the extra cost.
Frequently Asked Questions
Do offset mortgages reduce the mortgage balance?
Usually no. The savings balance is typically used to reduce the balance on which interest is calculated, but the savings remain separate. The mortgage balance only falls through repayments or overpayments.
Who might benefit from an offset mortgage?
An offset mortgage may suit someone with a sizeable savings balance, a need for cash flexibility, and a mortgage rate that makes the interest saving attractive compared with after-tax savings interest.