Money Insider: How to boost the power of your savings with an offset mortgage
Saturday 08 September 2012
According to research from First Direct this week, only 6.5 per cent of people are offsetting their savings against their mortgage. An offset mortgage is a proven and tax-efficient way to cut your mortgage costs and it's surprising that more people aren't taking advantage, particularly with savings rates starting to tail off again.
There's no tax to pay on your savings interest and the rate you receive is the same as your mortgage rate.
Another key benefit is that offsetting gives you flexibility, in that you always retain access to your entire savings balance in case you need to dip into it at a later date.
A major reason for the poor take-up is that consumers assume it's a complex product and only suitable for the super-wealthy, but both of these assumptions are wide of the mark as I'll illustrate later.
Another issue is that not all banks and building societies offer the offset facility, and therefore some customers are missing out because they aren't given the chance to take advantage of this product.
Along with Barclays and First Direct, Yorkshire Building Society is one of the main players in the offset market and unlike some rivals it allows offset to be used on its entire range of standard mortgage products with just a 0.2 per cent loading on the rate.
Offset is available across a wide range of loan to values with some of the top deals as follows: First Direct three-year fixed at 2.74 per cent and £1,499 fee to 65 per cent LTV, Yorkshire Building Society three-year fixed at 3.79 per cent and £495 fee to 75 per cent LTV and Barclays Lifetime Offset Tracker at 3.69 per cent and £1,499 fee up to 70 per cent LTV.
To give you a taste of the savings you can achieve with an offset and to prove that it is a viable option for those with fairly modest savings or those who intend to save on a regular basis, the following numbers speak for themselves.
For someone with savings of £5,000, offsetting it against a £100,000 mortgage at 4 per cent would save interest charges of £8,016 and takes one year and three months off the term of a 25-year mortgage.
Similarly, if you are able to put aside £150 per month into your savings account, then you'll save £20,518 in mortgage interest charges, cut three years and two months off the length of your mortgage and end up with a savings balance of £39,300 when the mortgage is repaid.
In the past, people have opted for a standard mortgage without giving it a second thought, but with a growing number of more competitive offset options to choose from, it's time that more borrowers started to take advantage of the considerable financial benefits.
Halifax fuel card offer doesn't add up
Halifax announced on Monday that customers taking out a personal loan for a car before 21 October would be eligible to receive a fuel card to the value of £100.
On the face of it, the deal sounds like an attractive offer, particularly with petrol and diesel prices soaring once more.
However, if you check out the personal loan deals on offer from rival banks and building societies, you will soon change your mind.
A quote for a £7,500 loan for five years on the Halifax website this week showed a representative rate of 8.8 per cent APR with repayments standing at £153.90 per month.
But with loans at just 5.8 per cent APR offered by Derbyshire Building Society and 5.9 per cent APR deals from both Tesco Bank and Sainsbury's Bank, you could save around £10 per month on your repayments.
Or, to put it another way, you could save between £546 and £607 over five years simply by opting for a lower rate and ignoring the £100 fuel card incentive. The figures show the importance of checking out deals across the market and not making a hasty choice based on short-term gimmicks or headline-grabbing incentives.
Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk
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