Offset Mortgage

Definition of 'Offset Mortgage'


A type of mortgage that involves blending a traditional mortgage with one or more deposit accounts; the savings balance(s) held in the latter can be used to offset the mortgage balance. Both the account and the loan are held at the same banking institution, and an initial loan balance (or credit limit) is established, along with an interest rate. The savings account is typically a non-interest bearing account, allowing the bank to earn a positive return on any balances in the account.

When each mortgage payment is made, the interest is calculated on the principal remaining in the mortgage account, minus the aggregate amount of savings in the one or more deposit accounts. Borrowers still have access to their savings; if money is removed from savings during the month, the next mortgage payment will be calculated on a higher principal balance.

For example, if the mortgage principal is $225,000 and $15,000 was held in savings during the last month, the interest due would only be calculated on ($225 – $15) = $210,000.

Investopedia explains 'Offset Mortgage'


This is a very attractive option for people that can be diligent savers - even though the savings account won't earn any interest, they are typically low-earning accounts that only pay 1-3% per year. Chances are that the interest rate on the mortgage is substantially higher, so any savings there is a net benefit to the borrower. Meanwhile, the foregone interest on the savings account becomes non-taxable payments towards the mortgage.

Offset mortgages are common in many foreign nations, such as the U.K., but are currently not eligible for use in the U.S. because of tax laws.


Filed Under:

comments powered by Disqus
Hot Definitions
  1. Federal Reserve Note

    The most accurate term used to describe the paper currency (dollar bills) circulated in the United States. These Federal Reserve Notes are printed by the U.S. Treasury at the instruction of the Federal Reserve member banks, who also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand.
  2. Benchmark Bond

    A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  4. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  5. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  6. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
Trading Center