Irish homeowners could save thousands in interest payments and shorten their mortgage terms by years if they take out a new type of home loan known as an offset mortgage, according to National Irish Bank (NIB).

The bank yesterday became the first lender to offer the product in the Republic.

Under an offset mortgage, any money homeowners have in a current or savings account at NIB is automatically credited against the outstanding mortgage balance, so that homeowners are charged a lower amount of interest on their debt.

The product is similar to a current account mortgage, which is already available in the Republic from First Active. But NIB claims that its product makes it easier for consumers to keep track of their monthly expenditure.

Ms Rosie Bennett, head of marketing at NIB, said homeowners could gain financially from an offset mortgage without having to make a conscious effort.

"It will work in your interest regardless of how big your mortgage is or how small your savings are," she said.

However, the offset mortgage will produce the biggest savings for customers with high credit balances in their current and savings accounts.

The standard variable interest rates charged on the mortgage debt range from 2.99 per cent to 3.19 per cent. Effectively, customers are being being paid these rates on their savings and on any money in their current account.

NIB hopes a new Irish Bankers' Federation code of practice on account switching, due to be introduced on February 1st, will make it easier for homeowners to switch to the offset mortgage.

Offset mortgages originated over a decade ago in Australia, the home of NIB's outgoing parent bank, National Australia Bank.

The product is the first launch by NIB since the announcement that Danish financial institution Danske Bank is to buy both NIB and Northern Bank in a deal expected to be completed in the spring.