Offset Mortgage Calculator United Kingdom

An offset mortgage links your savings to your home loan and sets them against the balance, so you pay interest only on what is left instead of earning taxable interest on the savings. This calculator shows the interest you save in a year and your lower first-year interest once your savings are offset, alongside the normal monthly repayment on the full balance.

How an offset mortgage works

With a standard repayment mortgage you pay interest on the whole balance. An offset arrangement links a savings pot, and sometimes a current account, to the mortgage, and the lender nets the savings against the debt before charging interest. Owe £200,000 with £30,000 in the linked account and interest is charged as though you owed £170,000. You give up the interest the savings would have earned, but avoid interest on an equal slice of the mortgage, which usually comes out ahead because mortgage rates are typically higher than savings rates.

The interest you save each year

The main figure is your offset savings times the mortgage rate: £30,000 against a 5 per cent mortgage saves about £1,500 of interest in a year. That is effectively a tax-free return equal to your mortgage rate, which makes offsetting attractive to higher rate taxpayers whose savings interest would otherwise be taxed. As you repay the mortgage and your savings change, the figure changes too, so treat it as a snapshot of your current position.

Offsetting versus a normal savings account

Compare the mortgage rate with the after-tax savings rate, not the headline savings rate. Ordinary savings interest counts towards your Personal Savings Allowance and is taxed above it; interest avoided through an offset is never taxed, because you never receive it. If your mortgage rate is higher than the net rate you could earn elsewhere, as it usually is, offsetting wins while still leaving the cash available.

A worked example

A £200,000 mortgage at 5 per cent with 300 months left has a monthly repayment of about £1,169. The calculator estimates the first year’s interest as the balance times the rate, £10,000 without offsetting. Link £30,000 of savings and interest is charged on £170,000, so the estimate falls to £8,500, a saving of £1,500. Because the balance falls during the year on a repayment mortgage, the real first-year interest is a little lower in both cases, but the saving is about the same. Whether that saving reduces your payment or shortens the term depends on your lender.

When an offset makes sense

Offset mortgages suit people with a meaningful cash buffer who want it to cut their borrowing costs without locking it away: the self-employed setting money aside for tax, anyone keeping an emergency fund, and higher rate taxpayers who would otherwise lose part of their savings interest to tax. With little in savings, or a linked pot you would quickly spend, the benefit is small and a lower rate on a standard mortgage may be better.

Assumptions and limitations

This is a planning estimate. It uses the single interest rate you enter and assumes your savings stay offset all year, with first-year interest estimated as balance times rate. Real offset savings change daily as balances move. It does not model product fees, the higher headline rates some offset deals carry, rate changes over time or exactly how your lender applies the saving. Use it to size the opportunity, then confirm the details with your lender.

About This Offset Mortgage Calculator

Use this offset mortgage calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.