Offset Mortgage Calculator
Our mortgage offset calculator shows how much interest you save and how many years you cut from your mortgage term by linking your savings to your mortgage balance. An offset mortgage is particularly powerful for those with substantial cash savings — especially higher rate taxpayers who would otherwise pay income tax on savings interest.
Offset Mortgage vs Savings
Compare keeping savings in a savings account versus using them to offset your mortgage.
How an Offset Mortgage Works
Rather than paying interest on your savings and paying interest on your mortgage separately, an offset mortgage links the two accounts. Your savings balance is notionally subtracted from your outstanding mortgage, and you only pay interest on the difference. If you have a £200,000 mortgage and £30,000 in linked savings, you pay interest only on £170,000.
You do not earn interest on your savings in an offset arrangement — instead, you save that interest on your mortgage. This has a significant tax advantage: savings interest is taxable (above Personal Savings Allowance levels), while the mortgage interest saving is not taxable income. For a higher rate taxpayer with substantial savings, the offset can be worth 40% more than the equivalent savings account return on an after-tax basis.
Offset Mortgage Example
On a £250,000 mortgage at 4.2% over 25 years, the standard monthly payment is £1,349. With £40,000 offset, interest is calculated on £210,000 — reducing the effective monthly interest charge by approximately £140 per month. If the scheduled payment stays at £1,349, more goes toward capital each month, cutting the mortgage term by approximately 3 years 4 months and saving around £22,000 in total interest.
Frequently Asked Questions
Offset mortgages are available from a smaller range of lenders than standard products, and rates are typically slightly higher than equivalent non-offset deals. The offset benefit must outweigh this rate premium — which it generally does for those with savings of at least 10–15% of the mortgage balance.
Your savings remain accessible — you can withdraw them at any time. When you draw down savings, the offset balance falls and your effective mortgage balance rises, increasing the interest charged. The offset arrangement is flexible, not permanent.
No — ISA funds cannot typically be used in offset mortgage arrangements because they are held in separate regulated accounts. Offset savings accounts are standard (non-ISA) current or savings accounts linked to the mortgage. Consider whether the guaranteed offset return exceeds what you could earn in a cash ISA after tax.
Offset mortgages are available on buy-to-let properties, but landlord offset products are rarer than residential ones. The tax advantage is less clear for landlords because mortgage interest is no longer fully deductible (replaced by a 20% tax credit) — individual landlord tax advice is essential before choosing offset.
Both reduce the effective mortgage balance and save interest. The key difference is liquidity: offset savings remain accessible, whereas overpayments permanently reduce the mortgage balance and cannot easily be retrieved. Our Mortgage Overpayment Calculator compares the interest saving from regular overpayments, which you can then compare with the offset saving shown here.
Enter your mortgage balance and interest rate, then your savings balance and the savings rate you currently earn. An offset mortgage links your savings to your mortgage, reducing the balance on which interest is charged — if you have a £200,000 mortgage and £40,000 savings, you only pay interest on £160,000. The calculator shows the interest saving against the interest you forgo by not earning savings interest separately. Offset mortgages have historically carried a slight rate premium over equivalent non-offset products. Use the calculator to determine whether the offset benefit exceeds the rate difference at your specific savings and mortgage balance levels.
Important Information
This calculator is provided for general information and planning purposes only. It does not constitute financial or tax advice and should not be relied upon as such. Figures are indicative estimates based on simplified, publicly available criteria and stated assumptions. Actual results depend on your full circumstances. See our Disclaimer for further information.