About the Offset Mortgage Calculator
An offset mortgage (called an offset account in Australia) links your savings to your home loan. Instead of earning interest on the savings, the balance is subtracted from the mortgage before interest is charged — so with a £200,000 loan and £30,000 in the offset account you only pay interest on £170,000. This calculator shows how much interest that saves and how many months it takes off your term.
It is useful for homeowners comparing an offset deal with a standard mortgage, for people deciding whether to keep an emergency fund in the offset pot or overpay instead, and for higher-rate taxpayers, for whom offsetting is often worth more than taxable savings interest. You can also add a regular monthly amount that you expect to build up in the offset account.
The calculation assumes your monthly payment stays at the level of a normal repayment mortgage (the most common set-up), so the interest you save goes into paying down the balance faster. It also assumes the rate stays fixed for the whole term and that the savings stay in the account; real offset deals often carry a slightly higher rate than the equivalent standard mortgage, so compare both.
With the default inputs, the interest saved is £58,970.46. Change any value above to recalculate instantly.
How to use the offset mortgage calculator
- 1Enter your current mortgage balance, interest rate and remaining term.
- 2Enter the savings you would keep in the offset account.
- 3Optionally add how much the offset balance grows each month.
- 4Read the interest saved and how much earlier you would be mortgage-free.
- 5Use the chart to compare the balance paths of a standard and offset mortgage.
Formula and method
The monthly payment M is the normal repayment amount for the full balance P over n months at monthly rate r (annual rate ÷ 12). Each month the calculator charges interest only on the balance B minus the offset savings S (never less than zero), and the rest of the fixed payment reduces the balance. Because less goes to interest, the balance falls faster and the loan ends early.
The standard mortgage is run the same way with S = 0, and interest saved is the difference in total interest between the two runs. Any monthly addition is added to S after each month. Rates are assumed fixed for the whole term and savings are assumed to stay in the account.
- B
- Mortgage balance at the start of the month
- S
- Savings held in the linked offset account
- r
- Monthly interest rate (annual rate ÷ 12 ÷ 100)
- M
- Fixed monthly payment for a standard repayment mortgage
- n
- Remaining term in months
Worked examples
£200k at 5% over 25 years with £30k offset
A £200,000 repayment mortgage at 5% over 25 years costs £1,169.18 a month and £150,754 in interest. Keeping £30,000 in the offset account means interest is charged on £170,000 at first; with the same payment the loan clears 50 months (4 years 2 months) early and total interest falls by about £58,970 — £1,535 of it in the first year alone.
Building the offset pot by £300 a month
A £250,000 loan at 4.5% over 30 years costs £1,266.71 a month. Starting with £10,000 offset and adding £300 every month, the growing pot cuts the interest bill by about £88,398 and finishes the mortgage 69 months (5 years 9 months) early.
Small emergency fund offset
Even a £5,000 emergency fund helps: on a £150,000 loan at 6% over 20 years it saves about £10,984 in interest and ends the mortgage 10 months early, while the money stays available if you need it.
Frequently asked questions
How does an offset mortgage work?+
Your savings sit in an account linked to the mortgage. The lender subtracts the savings balance from the mortgage balance before working out interest each month, so you pay interest on less. You earn no interest on the savings, but you also pay no tax on the benefit.
Is an offset mortgage worth it?+
It usually pays off when you keep a meaningful balance in the offset account and the offset rate is close to the best standard rate. Compare the interest you would save with the after-tax interest you could earn on savings, and check whether the offset deal carries a higher rate or fees.
Should I offset or overpay my mortgage?+
Overpaying cuts interest by the same amount per pound, but the money is locked into the house. Offsetting gives almost the same saving while keeping the cash accessible, which is useful for emergency funds or the self-employed setting aside tax.
Can I reduce my monthly payment instead of the term?+
Some lenders let you choose lower monthly payments rather than an earlier finish. This calculator models the common default of keeping the payment the same and shortening the term, which produces the largest interest saving.
Does an offset account earn interest?+
No. The savings earn nothing directly; the benefit is the interest you avoid on the mortgage. Because nothing is earned, there is no income tax, which is why offsetting is especially attractive to higher-rate taxpayers.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.