Britons fail to understand the offset mortgage
The benefits of offset mortgages remain a mystery to many, as first direct reveals that 40% of homeowners questioned don’t understand how they work and a further 35% only have a rough idea.
Concerned that borrowers are missing out, first direct is encouraging homeowners to get to grips with offsetting because in some cases the savings that can be made are significant.
Figures from the lender show that swapping to an offset mortgage can reduce the term of a 25-year £100,000 home loan by four years, saving £24,232 in interest payments over the lifetime of the mortgage as a result.
Offset mortgages link a savings account to a mortgage account: for example, a borrower with a £100,000 mortgage and £10,000 in their savings account would only pay mortgage interest on £90,000.
Furthermore when, as now, savings rates are low, an offset mortgage becomes a more attractive option for the higher-rate taxpayer, as money “earned” by reducing mortgage interest payments is non-taxable, unlike the interest earned on a savings account.