The rise of offset mortgages

Tuesday, 22 January 2008 12:00

Mortgages which allow customers to link their home loan with their savings or current account are experiencing a rise in popularity.

According to banking services firm, Intelligent Finance, so-called offset mortgages which allow shorter-term borrowing have been taken up by over one third of its customers in the last ten months.

It comes after the firm introduced a self-service proposition for customers to allow them to reduce the balance faster and repay earlier in March 2007. Intelligent Finance believes it saves customers "thousands".

The service was introduced following research which revealed nearly 75 per cent of people would like to reduce their mortgage term or increase payments in a bid to reduce balance over time.

One in five said they would welcome the ability to lower the amount on their regular mortgage payments.

Offset mortgages work by using the money received in interest on your savings, current account or - in some cases - ISA to pay the equivalent on your mortgage.

David McIntosh, a spokesman for the firm, said: "With Intelligent Finance, customers can now select their preference of shorter term, lower payments or reduced debt and Intelligent Finance will then ensure it happens automatically."

He said, by choosing the shorter term option a couple could save over £61,000 and cut five years and three months off the mortgage term.

This is based on a couple talking out a 25-year home purchase offset lifetime tracker mortgage, at 0.44 above the Bank of England rate, borrowing £150,832 on a repayment basis against a property worth £194,895 with £18,566 in savings and a £3,000 monthly salary paid into their current account.

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