Interest rate beaten by offset mortgages

30/07/2007

Due to recent interest rates increases, borrowers are trying hard to pay off their monthly repayments using a different plan.

Offset mortgages are quite simple, borrowers savings are adjusted against their borrowings, leaving them to pay interest on the balance only.
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A number of offset borrowers leaped 50 per cent during 2006 to 170,000 stated the Council of Mortgage Lenders.

Looking at IF, a borrowers with a £300,000 25-year repayments mortgage and £50,000 of savings to offset, people which continued to repay mortgage repayments based via a full loan, could cut 5-years and 3-months off their mortgage length, leaving a total saving of £120,000 via interest repayments.

Katie Tucker, a mortgage broker in central London commented, 'Your savings are working much harder for you this way than if they were sitting in an ordinary savings account because you don't have to pay tax on money used to offset against a mortgage.'

An offset loan can suit those with wages, which vary each month, mainly self-employed. Mr Tucker states that the only downfall with offsetting was that borrowers could easily draw into their savings and find making repayments difficult.

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