This technique gained popularity in the US and UK recently due to the United States housing bubble.
With traditional mortgages, borrowers often face large penalties for additional capital repayments or if payments were not made on time.
The key feature of an offset mortgage is the ability to reduce the interest charged by offsetting a credit balance against the mortgage debt, with interest charged based on the outstanding net debt.
The lender may place restrictions on the lending limits towards the end of the mortgage term with the aim of ensuring capital repayment.
However many lenders allow full drawdown up to the end date of the mortgage, when the loan must be repaid.
That can cause great problems for undisciplined borrowers and those approaching retirement if the lender is unwilling to extend the term (especially on the grounds of age).
Interest generated within deposit accounts for UK residents is deemed income and is taxable.