According to a survey on behalf of First Direct Bank, nearly half of homeowners do not understand how an offset mortgage works and another 35 percent only have a rough idea.
40 percent of those questions didn’t understand the benefits and 35 percent had just a rough idea of how these relatively new mortgage types work.
This indicates a huge number of homeowners might be failing to gain the savings an offset mortgage could make them.
An offset mortgage means that your savings, kept in a linked bank account, are still accessible but rather than receiving the interest on those savings the interest is instead ‘offset’ against the interest you’d otherwise pay on the mortgage.
The benefits mean that you can reduce the term of your mortgage faster – effectively it is like over-paying your mortgage but by using the interest from savings instead of money from your income.
Responding to the apparent lack of awareness about offset mortgages, Jimmy Kelly, first direct’s Head of Mortgages, said: “It’s a real worry that consumers are not aware of the benefits of an offset mortgage. Not many people know, for example, that our market leading fee free offset tracker would have the equivalent savings rate of 5.10% for higher earners.”
The CeMAP syllabus goes into more detail on offset mortgages and all different types of mortgages.