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The smart money's on offset mortgages

Clever offset mortgage borrowers have earned £1.4 billion more over the past few years than even the best savers out there, according to HSBC.

These mortgages work by offsetting savings the balance on your mortgage. You don't earn interest on your savings, instead your savings are offset against whatever is outstanding on the mortgage, and then you pay interest on that. So if you had a £300,000 mortgage and offset £40,000 of savings, you'd only pay interest on £260,000, meaning the mortgage gets paid off sooner.

Richard Tolchard, the senior mortgage product manager at HSBC-owned first direct, said: 'An offset mortgage is an excellent option for those borrowers looking to benefit from a higher rate for their savings. While many UK savers are currently seeing the value of their savings eaten up by inflation as well as being taxed on the interest earned on these savings, no tax applies if they use their funds to reduce their mortgage balance. As well as helping them to pay down their outstanding loan, offsets can help shelter savers from the effects of high inflation on their hard earned savings pots.'

'In the current interest rate environment mortgage borrowers could have saved thousands more with an offset in the last couple of years, even if they had diligently been seeking out the best buy savings rates.'

We guess it helps if you've got some savings in the first place though.

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