Set Off

Combine a loan with a credit account to find the net amount owing or due. See Offset mortgage. Off Set mortgages are designed for people with savings, If you have lump sum savings in a buildings society / bank account's you could use that money to 'Off Set' your mortgage interest. This is becoming very popular but do remember the Off Set mortgage only works when you have lump sum savings.

The principle is simple: most mortgage borrowers also have savings, even if they are small, and using this money to cancel out mortgage debt makes sense. Savers avoid paying tax on interest that their deposits would otherwise have earned. And because offset mortgage lenders calculate interest daily, every pound on deposit works hard to reduce the cost of borrowing.

Not to mention the fact that in a low interest rate environment, any savings you have are effectively earning interest at a higher rate than most mainstream savings accounts will pay. There are two basic types of offset deal. The first offset mortgages launched in the UK were current account mortgages (CAMs), linking a homeowner's current account with the mortgage.

With CAMs, the bank account and mortgage were combined so customers view just one statement and see one balance. For example, if there is £2,000 in the current account and the mortgage is £80,000, the customer's balance will register £78,000 overdrawn. The balance is calculated daily and the homeowner pays interest only on the balance. CAMs offer the same services as an ordinary bank account. Customers can also add any savings into the CAM account to reduce the debt balance. Any other debts, such as personal loans or credit cards, can be transferred to the account. The homeowner, typically, pays the same interest rate across the lot.

The second type of offset is where the deposits are kept in separate accounts or 'pots', but linked for the purposes of interest calculation.

With these, as with CAMs, borrowers pay interest only on the mortgage, minus savings.

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