first direct launches 2.58% offset tracker

| December 6, 2009 | 0 Comments
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First direct has launched a market-leading offset tracker, which tracks at 2.08% above the Bank of England’s base rate, offering a current rate of 2.58%.

The lender, which is part of the HSBC group, claims the deal is the best of its kind on the market, for a maximum loan to value ratio of 65%.

It comes with an arrangement fee of £999, although a rate of 2.99% (base rate plus 2.49%) is available to those who opt for a £99 fee.

Head of mortgages at first direct, Jimmy Kelly, comments: “The flexibility of the first direct offset tracker, plus the fact that you can keep all your money in separate accounts, makes it easier to keep on top of your finances and reduce your debt more quickly.”

However, recent research from first direct indicates that 40% of homeowners don’t understand how an offset mortgage works, and a further 35% only have a rough idea.

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.

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.

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