Offset mortgages could combat falling saving account rates says uSwitch.com
12 March 2009 / by Rebecca Sargent
Offset mortgages could offer a higher return alternative to savings accounts as interest rates continue to fall, according to uSwitch.com.
The comparison site claims that offsetting savings against a mortgage can be a good alternative to interest rates of next to nothing as it is simple, doesn’t require a huge savings pot, and is completely tax free.
However, despite these claims, uSwitch.com says that 1.6million people do not even know what an offset mortgage is, and almost one million think they are too complicated to even consider.
Nevertheless, the research found that 1.9 million homeowners are considering offsetting their savings against their mortgage, which could save them £40,000 in mortgage interest over 25 years.
In fact, uSwitch.com has calculated that in the first 12 months, a homeowner offsetting the average savings pot of £2,813 could save £221 in mortgage interest, compared to the £36 that amount would have made in a savings account paying 1.26 per cent over the same period.
Tracker mortgage customers who have already saved an average of £363 on their monthly mortgage repayments, could, according to uSwitch.com use the money to offset and still have access to it, unlike with mortgage overpayments.
Commenting, Louise Bond, personal finance product manager at uSwitch.com said: “Unlike overpaying, offsetting allows customers to access their savings at any time. For people that are nervous about the current financial situation, this could offer the most lucrative and safest alternative to a low rate savings account.
“Despite popular belief, you do not have to have a high savings balance to benefit from offsetting. As long as you have a mortgage rate that is higher than your savings rate after tax, you will be quids in by offsetting for as little as one year.
“In addition, you have the added security of being able to access the savings at any time unlike making overpayments,” Ms Bond added.
© Fair Investment Company Ltd