Mortgage blog: Why low savings rates mean you should consider an offset mortgage
Posted 19 November 2013 by Keith Osborne
One of the undesirable effects of falling mortgage rates in the UK has been the gradual eroding of savings rates. Savers have found the returns on their accounts slashed over recent months and it's now tough to find an account that will even keep pace with inflation.
So, isn't it time you put your savings to better use? The Independent reports that just one in ten people are currently reaping the benefit of offsetting their savings against their mortgage. An offset mortgage can help you improve your savings returns and save you thousands of pounds in interest.
We look at the main advantages of offset mortgages and why you shouldn't assume they are complicated or unsuitable for you.
Get a better rate on your savings and more flexibility
"An offset mortgage is efficient way to cut the cost of your mortgage and it's surprising that more people aren't taking advantage of the deals available," says Keith Osborne, editor of Whathouse.co.uk. "With savings accounts being so low, offset mortgages provide a great opportunity to put your cash deposits to better use."
One main benefit of an offset mortgage is that you don't pay any tax on your savings interest and the rate you receive is the same as your mortgage rate. Rather than interest being credited to your account, you reduce the amount of interest that you're paying on your borrowing.
The Independent says that "with interest rates on instant access and 1 year savings accounts struggling to hit 2%, for many people, there's far more to be gained by offsetting your nest egg against your mortgage balance, which in many cases is being charged at nearer 4%".
Offset mortgages also offer a great deal of flexibility. You always retain access to the savings that are linked to your mortgage and so you can deposit and withdraw funds as and when you need to.
Why you shouldn't assume an offset mortgage is not for you
"Many people assume that offset mortgages are complicated or that you need to be a maths genius to work out how to use one," adds Osborne. "However, they are actually much more straightforward than many people believe and you can normally manage your account online. Applications on your lender's website will let you see how paying an additional monthly amount of offsetting your savings can reduce your mortgage term and reduce the amount of interest that you pay."
You may have to shop around for an offset deal as not all banks and building societies offer this type of product. However, if you're looking for a way to make more of your savings - especially with interest rates being so low - they are a great option.
Click here to find out more about how Whathouse.co.uk can help you find the right mortgage.