Offset mortgages might make better use of cash than ISAs

Offset mortgages might make better use of cash than ISAs

23 March 2010 / by Rachael Stiles

Choosing an offset mortgage might save consumers more than keeping their savings in a low interest rate cash ISA will earn, Defaqto has argued.

With interest rates at a record low of 0.5 per cent, savings accounts and cash ISAs are offering historically low returns, so Defaqto suggests that savers could make better use of their cash by using their savings against an offset mortgage.

Defaqto's research has found that just 33 per cent of cash ISAs offer a rate above three per cent, so using an offset mortgage would save them more money than they would earn in a cash ISA by reducing the amount of interest they pay on their mortgage.

The website has calculated that a homeowner taking out a £100,000 offset mortgage at a rate of 2.74 per cent, and holding £20,000 in a linked savings account, would save more than £14,000 in interest and pay their mortgage back five years sooner.

In comparison, a cash ISA paying the average rate of 2.40 per cent would only generate a return of £12,000.

Kevin Bray, Insight Analyst at Defaqto, said "Offset mortgages are a good option for those looking to make their savings work harder."

But, homeowners should choose carefully when looking for an offset mortgage, and get expert advice to help them find the best deal for them, Defaqto warns.

My Bray suggests that borrowers "Look for specific product features that suit your financial needs as these vary enormously. We analysed 157 offset mortgages for our Star Ratings and found the most common features to be linking multiple accounts to the mortgage, flexible payment options and access to savings at any time. These might not suit everyone so it's important to check what you are getting before you commit".

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