Offset Mortgages Make Sense When Saving Account Interest Rates Are Low

When saving account interest rates are so low and inflation remains high, it is sensible to consider an offset mortgage.

Offset mortgages are particularly attractive when the interest earned on savings accounts is low, yet the cost of living is high, Defaqto, an independent financial research company is claiming.

The Office for National Statistics has just announced that the Retail Prices Index is now at 5.2% and the Consumer Prices Index is 4.5%.

With many savings accounts only paying around 2% AER, it is clear that those with savings are seeing their capital being eroded by the high costs of living.

Having to pay tax on the savings interest also makes matters worse.

However offset mortgages do allow someone with savings to benefit from the same savings interest rates as they are paying for their mortgage, as David Black, Defaqto’s Insight Analyst for Banking explains:

“If someone has a mortgage and a reasonable level of savings, the beauty of an offset mortgage is that they will earn interest on their savings at the same rate that they pay on the mortgage. As the interest earned on the savings is offset against that payable on the mortgage they don’t actually receive it but, as a result, it’s effectively tax free.”

“If someone is financially disciplined, using an offset could mean that they’re able to pay off their mortgage more quickly.”, he added.

There are 249 offset mortgage deals available at the moment with one of the most competitive being offered by the Yorkshire Building Society which has a two year fixed deal at 2.69% for a 75% LTV loan, although there is a £995 arrangement fee payable.