According to the results of a new survey from First Direct, an average family with a mortgage of £100,000 could use an offset mortgage to save on average £18,000.
A spokesperson for First Direct stated:
“More and more savvy savers are starting to see the potential of offset mortgages, helping them make the most of their savings pot, and forcing their money to work much harder.”
The way an offset mortgage works is your savings and balance of your accounts are calculated on a daily or monthly basis and counted against your mortgage so you only pay interest on the remaining balance. This means that instead of keeping your savings in one account earning a little interest that you barely notice and will possibly spend, instead that figure is balanced against your mortgage so you save money on the mortgage instead. With interest rates paid on savings at an all time low, for many people this is the best use of their savings right now.
Figures show that around £1 in every £10 being lent to mortgage holders in the UK is now being offset. In fact, offset lending actually increased by 16 per cent in the last quarter of 2008.
The survey also revealed that a huge 48 percent of Brits still don’t understand the basic principle of offsetting mortgages. Understanding the offset mortgage can be quite tricky for many people and it is one area of CeMAP training where trainers spend some time explaining in detail with simple-to-understand diagrams.
If borrowers have a decent savings account, then it is important to explore all the options available to you and get a mortgage advisor to explain how an offset mortgage works as it could save the borrower thousands of pounds and shave years off their mortgage.