UK Offset Mortgage Calculator
Calculate how much interest you save by linking your savings to an offset mortgage. Shows effective interest balance, monthly savings, total interest saved over the full term, and term reduction. Includes comparison of offset versus overpaying, tax-free return equivalent for your tax bracket, family offset planning with parental savings, and offset versus ISA analysis.
An offset mortgage links your savings and sometimes your current account to your mortgage. Interest is calculated daily on your mortgage balance minus the linked account balances. Your payment stays the same as without the offset — you simply pay less interest each month, so more of your fixed payment goes to principal.
| Scenario | Offset Balance | Effective Mortgage Balance | Monthly Interest | Interest Saved/mo |
|---|---|---|---|---|
| No offset | £0 | £250,000 | £990/mo | — |
| £20,000 offset | £20,000 | £230,000 | £910/mo | +£79 |
| £40,000 offset | £40,000 | £210,000 | £831/mo | +£158 |
| £60,000 offset | £60,000 | £190,000 | £752/mo | +£238 |
| £80,000 offset | £80,000 | £170,000 | £673/mo | +£317 |
| £100,000 offset | £100,000 | £150,000 | £594/mo | +£396 |
Some offset mortgage products allow family members — typically parents — to link their savings to your mortgage. Their savings reduce your interest without being gifted or transferred. The parents retain full access to their savings at all times.
| Arrangement | Total Offset | Effective Rate | Annual Interest Saving |
|---|---|---|---|
| Your savings only | £43,000 | 3.93% | £2,043 |
| With parents' savings | £123,000 | 2.41% | £5,843 |
How to Use This UK Offset Mortgage Calculator
Enter your mortgage balance, interest rate, remaining term, linked savings balance, and current account balance. The calculator shows your effective interest balance (mortgage minus savings), monthly and annual interest saved, total interest saved over the full term, and how many years your term is reduced by.
What is an Offset Mortgage?
An offset mortgage links your savings account (and sometimes your current account) to your mortgage. Instead of earning interest on your savings separately, your savings reduce the mortgage balance on which interest is calculated. You pay mortgage interest only on the difference. Your savings remain fully accessible at all times — this is the key distinction from overpaying, where you give up access to those funds permanently.
How Offset Interest Calculation Works
Effective balance = Mortgage balance − Linked savings
Example:
Mortgage: £250,000 at 4.75%
Linked savings: £40,000
Effective balance: £210,000
Monthly interest (without offset): £250,000 × 4.75% ÷ 12 = £990
Monthly interest (with offset): £210,000 × 4.75% ÷ 12 = £831
Monthly interest saved: £159
Annual interest saved: £1,908
Your monthly payment stays the same — the extra payment goes to principal.
Because interest is calculated daily on most offset mortgages, even temporary increases in your account balance (such as your salary arriving) reduce your interest charge for those days. Some offset products allow you to link your current account, maximising this effect throughout the month.
Offset vs Overpaying: Key Differences
Both strategies reduce mortgage interest, but in different ways with different trade-offs:
- Access: Offset savings remain fully accessible. Overpayments permanently reduce your balance and cannot be retrieved without refinancing.
- ERC risk: Offset carries no ERC risk — savings just sit in a linked account. Overpayments beyond 10% of balance may trigger Early Repayment Charges on fixed-rate deals.
- Rate: Offset mortgages typically cost 0.1–0.3% more in rate than equivalent standard products. This partially offsets the interest saving benefit.
- Tax: No interest is earned on offset savings, so there is no tax liability. This makes offset particularly valuable for higher and additional rate taxpayers.
Example: £250,000 Mortgage with £40,000 Savings
James and Lucy's offset mortgage in Bristol
James and Lucy have a £250,000 mortgage at 4.75% with 22 years remaining. They have £40,000 in savings and link it to their offset mortgage.
| Mortgage Balance | £250,000 |
| Rate | 4.75% |
| Linked Savings | £40,000 |
| Effective Interest Balance | £210,000 |
| Monthly Interest Saved | ~£158/month |
| Annual Interest Saved | ~£1,900/year |
| Total Interest Saved (22yr) | ~£28,000 |
| Term Reduction | ~2 years 9 months |
| Savings accessible? | Yes — full £40,000 available any time |
By linking their savings to their offset mortgage, James and Lucy save approximately £28,000 in interest over the life of their mortgage and cut over 2.5 years off their term — without giving up access to their £40,000 savings.