Offset mortgages are linked to saving accounts. You will pay interest on the different between the outstanding mortgage balance and the amount of savings in your account. For example, if you owe £200,000 in total and you have £50,000 in savings, your interest rate for that month will be calculated on £150,000. You are usually able to decide whether to keep the monthly repayments the same each month or to reduce them when the amount of offset savings increase.
You are still able to access and use your savings however the more to offset, the faster the mortgage will be repaid.
You will not gain any interest on savings in an offset account but you will not have to pay tax on them either.
Offset mortgages are available both as fixed rates and variable rates – due to the overall flexibility of them, they do tend to of a higher interest rate.