An offset mortgage is a combination of a savings account and a mortgage in one place.
The savings you hold are offset against your mortgage, and it counts as a temporary over-payment of your mortgage debt.
When making conventional over-payments of your mortgage, your money is “spent”. For example, if you have a £100,000 mortgage and you make an over payment of £10,000 (10% of the outstanding loan), your mortgage reduces by that amount, but you no longer have access to the cash.
By having an offset account, you retain the access to your savings, but for as long as the cash is held in your offset account the balance is offsetting the interest being paid on your mortgage.
This means that the return you are getting on your cash is the interest rate being charged on your mortgage, which is usually higher than the interest you receive on a standard savings account.
You can use your offset savings to reduce the term of your mortgage, or you can reduce the monthly payment on your mortgage.
However, keeping a large amount of money in cash, even when offsetting this against your mortgage, may not give you a good long-term return.
Many people want to be mortgage free as early as possible. By using an offset mortgage, this could move you towards this towards goal, while still retaining access to your cash.
*Your home maybe repossessed if you do not keep up repayment on your mortgage.