Offset lender first direct has come up with five ways to make the most of your offset mortgage. In these times of economic uncertainty, rising inflation and seemingly ever increasing fuel prices the lender argues that an offset mortgage is a useful tool for homeowners to make the most of their money.
1. Make unlimited overpayments
By making regular overpayments of just £50 per month for the duration of their mortgage homeowners could shave nearly three years off the term and over £6,200 off the total cost.
The old adage ‘make hay whilst the sun shines’ holds true as those who’ve made overpayments during the low base rate environment are ready to significantly benefit should interest rates rise and could move to lower monthly payments if their finances become tighter in the future.
2. Use your savings to offset your mortgage
On average offset mortgage customers hold around 20 per cent of their mortgage balance in savings. By using these savings to offset their mortgage balance, 40 per cent taxpayers would receive the equivalent savings rate of 4.92 per cent AER.
Considering savings rates on offer owing to the current low base rate environment, offset savings could offer a full 4.62 per cent AER above the average instant access savings account available at the moment (0.3 per cent AER).
Homeowners who choose to use their £30,000 savings to offset a £150,000 mortgage could reduce their monthly payments by nearly £70 each month, save over £20,500 on the total cost of their mortgage and still have their original £30,000 savings intact. Furthermore, if they decide to maintain their monthly payments at the higher level, with the difference being an overpayment, they could reduce the total cost even further (by over £26,000) and reduce the term of their mortgage by 37 months.
3. Offset your current account balance
Although accounts remain separate, to make it easier to identify balances in each account, customers can still offset their instant access savings accounts and credit balances in their current account. Every penny in each of these accounts will be automatically offset against their mortgage whether it be 30p for 3 days or £30 for the duration of the loan. Basically every penny works its hardest to reduce the debt.
4. Redraw previous overpayments
It can make sense for people to stay put and improve their existing property rather than move to a bigger place. With a flexible offset mortgage it is possible to redraw funds previously overpaid to make improvements to the home or important life purchases, rather than arrange a separate loan.
5. Take your rate to your next property
With the Bank of England base rate at an all-time low and murmurings that it may go even lower over the next few months now is the time to secure a fabulous rate. However, over the years it takes homeowners to pay off their mortgage it’s likely that rates will eventually go up and it’s unlikely that they will want to remain in the same home for the whole time.
Richard Tolchard, senior mortgage product manager at first direct commented: “first direct’s flexible offset mortgage is the real deal, offering the flexibility savvy homeowners need during these uncertain times. Our five flags can help them navigate the choppy economic waters ahead.”
