Homeowners using offset mortgages could see their loans paid off an average of two years ealier than...
Homeowners using offset mortgages could see their loans paid off an average of two years ealier than other mortgage products, argues Intelligent Finance.
Figures quoted by IF suggest someone with an average mortgage of just over £125,000 and saving of around £6,000 could save themselves over £12,000 - the equivalent of two years worth of mortgage payments - providing the loan is taken at 71% Loan To Value (LTV).
Offset mortgages work by ensuring interest is not paid on a holder's savings accounts held at the same bank but instead reduces the interest on an equivalent amount of their remaining mortgage.
An example presented by IF shows the principal of the offset mortgage is to reduce the interest on a mortgage by the amount in savings. If a borrower has a mortgage of £70,000, and total savings or current account holdings of £5,000, they are charged interest only on £65,000 of their mortgage.
Andy Young, head of mortgage services at Misys, says the IFA network expects offset mortgages to be launched by many more mortgage providers in the future as it is now one of the most popular products chosen by consumers.
"We think offset mortgages are an excellent idea, and the only real issue is explaining them to the consumer in plain, simple language they understand," says Young.
"Anyone with savings should seriously consider having an offset mortgage because especially in cases where the mortgage is used in part as a personal loan, the interest rate is much better," he continues.
"We will see more and more offset mortgages sold in the future, as they are already the biggest selling mortgage at Misys," adds Young.
However, Michael Brill, director at Baronworth Investment Services, disagrees and says offset mortgages may not be popular as anticipated, because borrowers need to check the small print and ensure there are not better deals elsewhere.
"Offset mortgages can be a good mortgage option for the right person - ie those people who are not likely to end up putting the cost of their shopping onto their mortgage," says Brill.
"But it is possible to get better rates of interest if consumers take a special deal elsewhere, such as discounted fixed-rate deals. Offset mortgages are for people who are sensible with money, because it would be very easy to access money set aside in a current account.
"I don't think offset mortgages will become particularly popular with lenders because the amount of administration behind organisation of such products must be expensive given their complexity," adds Brill.
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