The potential savings to be made by choosing an offset mortgage are outrunning the interest available on cash ISAs in the current market, according to mortgage provider first direct.
Borrowers on an offset mortgage are up to £3,306 better off than savers who are putting this money in the average cash ISA instead of using it reduce the interest they pay on their home loan, first direct says, so this money could be put to better use.
By putting the money into a savings account which is linked to their mortgage, borrowers can reduce the amount of debt that they pay interest on, for example, linking a savings account with £20,000 in it to a £100,000 mortgage would mean they would only pay interest on £80,000 of the balance.
Based on analysis of cash ISAs and mortgage rates over the last 10 years, first direct discovered that the maximum amount paid into a cash ISA since 6 April 2000 would now be worth £38,323, but if this money had been linked to an offset mortgage, they would have saved £31,200 and reduced their mortgage by £10,434 – a total saving of £41,634.
Commenting, Richard Tolchard, senior mortgage product manager at first direct, said: "For people without a mortgage or possibly nearing the end of their mortgage, cash ISAs are often the most efficient way to save cash. However for savers who hold a mortgage, this analysis show that cash savings work harder offsetting against a mortgage than they do within a tax efficient ISA."
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