Homeowners could cut £18,000 off their mortgage by offsetting it against their savings, research from First Direct has suggested.
As interest rates have fallen, homeowners have been left looking for other ways to make their savings work for them, which First Direct says led to a 16 per cent increase in new offset mortgages
in the last quarter of 2008.
The study shows that switching to an offset mortgage could cut as much as £18,322 off a borrower's interest payments over the 25 year lifetime a £100,000 mortgage, whilst cutting nearly three years off the repayment period.
First Direct found that many homeowners are unaware of the potential benefits of offset mortgages; almost half admitted to not understanding how offset mortgages work, while less than a quarter see offsetting as a method of reducing the cost of their mortgage
Offset mortgages allow homeowners to offset their mortgage against their savings
; for example, if a homeowner had savings of £20,000 and a mortgage of £100,000, an offset mortgage would allow them to only pay interest on £80,000 of their mortgage.
While mortgage offsetters will not earn any returns on their savings during the mortgage term, the potential savings of offsetting can outweigh the loss of interest.
"Our research shows offset mortgage lending now accounts for £1 in every £10 being lent to UK mortgage holders and is on course to reach a record share of new mortgage lending in 2009," said First Direct mortgage
spokesman Jimmy Kelly. "More and more savvy savers are starting to see their potential, helping them make the most of their savings pot, and forcing their money to work much harder."Get mortgage quotes and advice »
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