Offset mortgages allow a borrower to combine mortgage repayment with personal savings. It is considered to be one of the most significant personal finance innovations that help a customer to save tax as well as make mortgage repayments. Offset mortgages allow a borrower to reduce an effective mortgage by opening a savings account with the same lender. Lenders consider only the effective balance (mortgage-savings) to calculate the interest on the mortgage.

Offset mortgages helps to manage mortgage repayments. For example, if a person borrows USD200,000 as a mortgage, but also maintains USD20,000 as savings in his account, only USD180, 000 (200,000-20,000) will be considered for calculating the interest on the mortgage. Offset mortgage providers usually allow customers to link the mortgage to their current account. In Current Account Mortgages (CAM), the borrower will see only the effective mortgage (i.e. the mortgage minus the savings) in his or her account statement. Some banks may maintain the mortgage in a separate linked account and merge the savings and mortgage figures only for calculating interest.

The advantages of offset mortgages are many. For example, some governments allow borrowers to save on tax that would have otherwise accrued on their savings account. Since the effective interest that they receive is used by the bank to pay a part of the mortgage, the interest does not attract tax. On the other hand, money that is saved in the savings account will contribute to reducing the effective mortgage on a daily basis.

Offset mortgage allow customers to pay mortgage overpayments without attracting a penalty. Similarly, it also allows borrowers to plan their repayments effectively by increasing repayments in some months and reducing it in others. Since most banks do not insist on a regular monthly payment, customers have the liberty to make repayments in a flexible manner.

The disadvantage with offset mortgages is that interest rates on such mortgages may be high. Hence, customers will have to plan in advance and opt for the best bargain.