Offset Loans Becoming More Popular
As the rate of return on savings accounts and investments have dropped dramatically over the course of the last six months or so, along with many borrowers looking for new ways to save money and reduce the balance on their homeowner loans, an increasing number of borrowers are starting to take advantage of offset loan deals.
In the last three months of last year alone new offset loan deals increased by around 16 per cent, as a growing number of individuals look for a better and more efficient home for their savings.
An offset homeowner loan allows a borrower to balance their savings, either as a lump sum or on a regular monthly basis, against the outstanding balance on their loan, thereby reducing the interest which is charged on the loan.
If the homeowner loan repayments are maintained at the original levels, this creates an overpayment each month, effectively reducing the loan balance quicker and therefore saving even more interest. Although they are becoming more popular, borrowers still need to be educated with regard to offset loans, with only 21 per cent of borrowers are realising the benefits of this course of action and almost half of borrowers do not understand what offsetting is at all, according to research by First Direct.
The research shows that for someone with a typical loan of £100,000, offsetting their savings against this could reduce the term of the loan by almost three years, saving the borrower a staggering £18,322 in interest payments in the process. Jimmy Kelly of First Direct said “Our research shows offset mortgage lending now account for £1 in every £10 being lent to UK mortgage holders and is on course to reach a record share of new mortgage lending in 2009. More and more savvy savers are starting to see their potential, helping them make the most of their savings pot and forcing their money to work much harder.”
