Offset mortgages

The first offset mortgage was launched in 1997 when the One Account was introduced initially to Virgin Direct customers as a joint venture between Virgin Direct and The Royal Bank of Scotland. Various other providers are now offering this facility.

Offset mortgages can save homeowners a significant amount of money on interest payments during the term of their home loan.

Offset accounts usually consolidate mortgage, savings and current accounts under one provider. While no interest is paid on the credit balances in the savings or current account, the credits are offset against the outstanding mortgage and as a result, your total debt shrinks.

Although savings remain accessible, when cash is withdrawn, the amount on which interest is payable will increase.

However, if you don't touch your savings, they can effectively earn more interest than you'll get in a traditional savings account.

Offset mortgages can also lower your tax bill. Income tax is also normally payable on standard savings accounts. However, with an offset mortgage, because you're saving interest rather than earning it, you won't have to hand any money over to the taxman.

What's more, offset mortgages are very flexible, allowing lump sum overpayments to be made or additional borrowing against overpayments. This can make this type of product ideal for the self-employed or those with unpredictable levels of income.

Some providers can also factor in credit cards and loans under the same interest rate too and while the standard variable rate may be slightly higher than other mortgage providers' rates, the rate will be much lower than that of most loans.