An Offset Mortgage Could Save You £22,000

Here’s some food for thought for homeowners, saving the cost of a sandwich each day could save you £22,000 in interest payments on your home loan and result in paying off your mortgage three years early.

According to a study by Abbey, saving £3 per day could result in the above benefits providing you have an offset mortgage. Abbey’s research into homeowners’ mortgage habits revealed that on average the annual overpayment made by UK homeowners keen to pay off their home loan as soon as possible was £500.

According to Abbey, homeowners built up overpayments throughout the year, with a peak in November, which saw payments hit £560.

Not surprisingly, however, December saw the least amount of money being put towards the mortgage, with the average annual overpayment balance dropping to as little as £215, largely due to the approach of Christmas.

Despite the fact that majority of UK homeowners are keen to clear their mortgage and own their home outright as soon as possible, uncertainty over what the future may hold often leads to many deciding against pouring extra cash into their home loan.

Taking out an offset mortgage, however, can mean you can have your cake and eat it, as your mortgage is linked to your bank account. This means you forgo receiving interest on your savings and instead have the interest reduce the size of your mortgage.

For example, if you have a £150,000 mortgage, savings of £50,000, a net monthly salary of £2,000, you only pay interest on £98,000 of the mortgage.

This allows homeowners to still make a commitment to clearing their home loan whilst still being able to access cash if a drastic situation arises.

According to Abbey’s research, a customer who saved £3 per day with its Flexible Plus tracker deal would save £21,992 in interest over the lifetime of 25-year £180,000 mortgage at 4.99 per cent, as well as paying the mortgage off three years and six months early.

Lal Tawney, head of mortgages at Abbey, said, “ Some borrowers view re-mortgaging as a burden and they are not inclined to scour the market for the best deals. We recently found that more than a third of people on a mortgage deal don’t intend to re-mortgage to new rate and many others don’t know what the deal they are on or when it expires.”

Despite being seen as mortgage only the wealthy can benefit from, offset mortgage can benefit anyone who is willing to save. Just forgoing some of those treats and making small daily savings could make an impact on the interest you pay on an offset mortgage.

As these mortgages work by linking the mortgage to savings and current account balances in order to reduce the capital on which the borrower pays interest, every extra penny in the bank really does count.

Ally Milton
16/5/06