Offset Loans Becomming More Popular
Offset home owner loans and mortgages have been available on the market for many years now, but only seem to have been taken advantage of by a select few individuals who wish to reduce the outstanding balance of their home owner loan.
An offset home owner loan allows a borrower to set aside their savings in a deposit account against their home owner loan interest payments each month, whilst still having access to their savings pot.
Although a borrower who uses this technique will not receive any interest on their savings, they will however, reduce the interest payable on their home owner loan and therefore reduce their loan balance quicker if they maintain the same loan repayments each month.
A recent survey, which was conducted by First Direct online bank, found that borrowers are becoming more aware of offset mortgages and home owner loans, with 64 per cent of borrowers having heard of offsetting.
Figures from the Council of Mortgage Lenders (CML) show that the number of offset loans has increased from 8.5 per cent in 2007, to 11 per cent by the middle of this year.
One reason for this increase in offset loans is due to the fact that interest rates payable on savings accounts have dropped to insignificant levels and many people are seeing that their savings could be put to much better use.
Figures from First Direct show that the typical offsetter, has the equivalent of 20 per cent of their home owner loan balance in their offset savings account and on a typical loan of £150,000, this could save a borrower more than £18,000 in interest payments and reduce the loan term by almost three years.
Richard Tolchard of First Direct said “At a time when we need to make more of our savings, offset can really make a difference by enabling customers to get up to 4.40 per cent AER gross on their savings as well as a great mortgage rate.”
