The majority of homeowners do not have a clear understanding of offset mortgages or their potential benefits, according to new research from first direct.
The study found that 40 per cent of homeowners have no grasp on the basic idea of an offset mortgage, while a further 35 per cent only have a vague idea of how they work.
Less than a quarter of homeowners are aware that offset mortgages can reduce the term of their mortgage, so first direct is concerned that consumers are unaware that they could missing out on significant savings on their mortgage.
Analysis from first direct shows that switching to an offset mortgage could cut four years off the term and £24,232 off the cost of a £100,000, 25 year mortgage.
Jimmy Kelly, head of mortgages at first direct, said: "It's a real worry that consumers are not aware of the benefits of an offset mortgage.
"Not many people know, for example, that our market leading fee free offset tracker would have the equivalent savings rate of 5.10% for higher earners."
Some of the benefits of an offset mortgage, according to first direct, include reducing the amount of interest on their borrowings by offsetting them against their savings. This means they receive no interest on their savings, but therefore they also pay no tax and the savings they make on their mortgage could amount to more than they would earn from their savings.
For example, a homeowner with a mortgage of £150,000 and savings of £50,000, will only pay interest on £100,000 of the loan.
Offset mortgage customers have the option to make unlimited overpayments on their home loan, either in lump sums or regular payments, with no early repayment charges on tracker offset mortgages, and they can also take their mortgage with them if they move house.
© Fair Investment Company Ltd