Offset mortgages are a type of flexible mortgage that allow borrowers to reduce the interest charged by offsetting deposit accounts against the mortgage balance.

For example, if the offset mortgage balance is £250,000 and an offset deposit account has a credit balance of £50,000 then interest will be charged on the net balance of £200,000.

Some lenders offer the products to be offset against the Mortgage, such as current accounts and credit cards, as separate products.

Other lenders combine the products into a single facility, which is commonly called a current account mortgage.

While the specific features of various offset mortgages differ, some of the main features include:

• Offsetting - linking the mortgage deposit accounts
• Overpayments and underpayments
• Additional borrowing – to an agreed upper limit
• Payment holidays
• Daily interest calculations
• Portable – the mortgage may be transferred to another property
• Flexible repayment type – repayment or interest-only
• Flexible term of loan – usually from 5 to 25 years

Interest is usually not earned on the balance of the deposit account. Instead it is offset against the Mortgage balance in order to save interest.

This can help reduce income tax liability as tax on interest earned is charged at 20% in the UK.