Offset remortgage deals are tipped as a faster way to clear mortgage debt

Offset remortgage deals have become a widely advertised way for home-owners to pay off their mortgage debt a head of time.

Essentially with an offset remortgage a borrower will only pay interest on the difference between the mortgage amount and the balances in their current or savings accounts. Tax is not payable on the savings as they will not earn interest and a borrower will still have access to them when needed. In the simplest type of offset, deposits are kept in separate accounts or 'pots', but linked for the purpose of interest calculation. The more money put on deposit the more the balance will reduce and the more money withdrawn the more the balance will increase.

Offset remortgages are flexible in nature as borrowers can overpay any amount they like, although an early repayment charge may apply if the mortgage is paid off in full ahead of time. This means that over a 25 year mortgage term, thousands of pounds can be saved in a highly tax efficient way.

Many mortgage customers have savings which currently earn very little interest and so many are opting to use this money to cancel out mortgage debt. By doing this, they avoid paying any tax on the interest their savings would have earned, and because offset mortgage lenders calculate interest daily, every pound on deposit works to reduce the cost of borrowing.

When offset remortgage deals were first offered, the rates were often substantially higher than normal repayment mortgages. Today this difference no longer exists and offsets from providers such as First Direct can actually beat normal mortgage rates.