Beat your cash ISA with an offset mortgage

Mortgage provider First Direct has released figures this month stating that many would benefit more from putting their savings against an offset mortgage than they would by saving in a cash ISA.

With an offset mortgage, a savings account is linked to the mortgage account. When borrowers place money in that savings account, this reduces the level of debt on their home loan and reduces the interest payable on the mortgage.

First Direct stated that the average borrower could save an additional £3,306 compared to those saving their money in the average cash ISA. As an example, they stated that £20k of savings linked to a £100k mortgage would mean interest is only paid as though they had an £80k mortgage.

Anybody saving as much money as they were allowed in a cash ISA since the year 2000 would now on average have £38,323 in the account. By linking this same money to an offset mortgage, the balance would have reduced by more than £10k and they would also have saved £31,200 in interest – making it worth £41,634 rather than the £38,323 in the ISA. These figures were based upon an analysis of average mortgage rates and cash ISAs in the last decade to 2000.

Senior mortgage product manager at First Direct, Richard Tolchard said: “For people without a mortgage or possibly nearing the end of their mortgage, cash ISAs are often the most efficient way to save cash. However for savers who hold a mortgage, this analysis show that cash savings work harder offsetting against a mortgage than they do within a tax efficient ISA.”

Generally speaking, mortgage advisors would only recommend an offset mortgage for those who either already have a good level of savings that they still want easy access to or for those who anticipate being able to save a reasonable amount each year. On CeMAP training courses, offset mortgages are just one of the mortgage products studied.



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