Offset Mortgage
What it is:
How it works/Example:
For example, let's say John Doe has a checking account, a savings account and a mortgage from Bank XYZ. Like all mortgages, the bank calculates the interest on the mortgage principal every month. However, in an offset mortgage, the bank reduces the amount of the principal by the amount of the deposit balances and then calculates the interest on the net amount.
For example, if the borrower had $10,000 in her checking and savings accounts with Bank XYZ and a $200,000 mortgage balance, the bank would calculate the interest on a $190,000 rather than $200,000.
[If you're ready to buy a home, use our Mortgage Calculator to see what your monthly principal and interest payment will be.]
Why it matters:
Offset mortgages reward savers by reducing the interest costs of their mortgage.