Offset mortgage calculator
Link your savings to the mortgage and you only pay interest on the difference. Keeping the payment level, the saved interest clears the loan sooner.
How offsetting cuts the cost
An offset mortgage links a savings pot to the loan. Instead of earning interest on the savings, you avoid paying interest on the same amount of mortgage, because the lender charges interest only on the balance left after the offset. The saving comes at the mortgage rate and is free of tax, which is usually a better deal than taxable savings interest.
This tool holds the monthly payment at the normal repayment level. Because part of each payment no longer needs to cover interest, more of it pays down capital, so the balance drops faster and the mortgage ends early. The larger the savings and the higher the rate, the bigger the effect.
Worked example
On a £220,000 mortgage at 4.50% over 25 years, the normal payment is £1,222.83 a month. Offsetting £30,000 of savings against it means interest is charged on the balance minus that amount. Over the loan you pay £95,491 in interest rather than £146,849, a saving of £51,358, and the mortgage clears in 21 years 7 months instead of 25 years.
Common questions
How does an offset mortgage work?
Your savings sit in a linked account and are set against the mortgage balance. Interest is charged only on the balance minus the savings, so the debt costs less each month. On the example, offsetting £30,000 saves about £51,358 in interest and clears the loan 3 years 5 months early.
Do I lose access to my savings?
No. Offset savings stay yours and you can withdraw them, which is the main appeal over simply overpaying. If you take money out, the offset shrinks and the interest saving falls, but the flexibility is why some people accept a slightly higher headline rate.
Is offsetting better than earning interest on the savings?
Often, yes. The offset saves interest at the mortgage rate with no tax, while savings interest is taxed once you pass your Personal Savings Allowance. If your mortgage rate is higher than your after-tax savings rate, offsetting usually wins.
Does the monthly payment change?
This calculator keeps the payment the same as a normal repayment mortgage. The interest you no longer pay is redirected into capital, so the balance falls faster and the term shortens. Some lenders instead let you lower the payment and keep the full term.
What are the drawbacks?
Offset deals sometimes carry a slightly higher rate than a plain mortgage, and the benefit only shows if you actually hold meaningful savings. With little in the linked account the offset does almost nothing, so it suits people with a real cash buffer.