what is an offset mortgage 
an offset mortgage is a type of home loan that involves blending a traditional mortgage with one or more deposit accounts held by the same financial institution the savings balance maintained in the deposit account may then be used to offset the mortgage balance lowering interest payments due 1offset mortgages are standard in many nations such as the u k but are currently not eligible for use in the u s due to tax laws the closest alternative to an offset mortgage in the u s would be an all in one mortgage understanding offset mortgagesan offset mortgage is a desirable option for diligent savers the linked savings account will not earn interest during the life of the loan however most savings accounts are typically low earning accounts that pay only 1 to 3 per year or less the mortgage interest rate is usually substantially higher than the rate paid on the savings account so any savings there is a net benefit to the borrower also the foregone interest on the savings account becomes non taxable payments toward the mortgage 1the savings account is typically a non interest bearing account which allows the bank to earn a positive return on any balances held in the account the calculation of interest is on the remaining balance of the note less the aggregate amount of savings in one or more deposit accounts the borrower still has access to their savings account however the next mortgage payment will be calculated on a higher principal balance if the borrower withdraws funds from the account more than one savings account may link to the offset mortgage account and family members of the borrower can link their savings accounts to the mortgage account to reduce the amount of the principal and thus the interest on the remaining balance 2example of an offset mortgagethe smith family has an offset mortgage the principal is 225 000 with a 5 interest rate and the family has 15 000 held in savings with the same lender with no withdrawals during the last month calculation of the next interest payment on an offset loan would be based on the 210 000 balance which reflects the loan principal less the savings account balance 225 000 15 000 210 000 benefits of an offset mortgagean offset mortgage is an attractive option for paying back a mortgage loan primarily because the borrower can make small payments to pay down the principal instead of the interest as more funds apply toward the principal the loan balance reduces more rapidly at the same time because these payments are to the borrower s own savings account the borrower still has the use of their money if needed this flexibility gives the borrower all the benefits of paying back the mortgage quickly but also the benefits of saving money in an investment account 2