Even though recent research shows that by overpaying a mortgage you get greater financial benefit in the long run than by trying to save money into a saving account, mortgage holders continue to save money rather than pay down their mortgage debt.
Research by first direct shows that 42% of UK mortgage holder save regularly and yet only 21% overpay on their mortgage.
Many mortgage holders don’t know the cost of their mortgage including interest or in fact know the interest rate on their mortgage.
Some don’t know if they can overpay on their mortgage or indeed if they can by how much before they incur early repayment charges.
Maybe all these factors contribute to the minimal number of people who pay off their mortgage rather than save money into a savings account?
Perhaps it’s because they prefer the flexibility of a savings account and are reluctant to pay down mortgage debt in uncertain times as they may need access to their money in unforeseen circumstances?
Research by the direct bank has found that by offsetting their savings against their mortgage debt, the average mortgage holder could reduce their mortgage payments by £28.25 per month while retaining access to their savings.1
Richard Tolchard, Senior Mortgage Manager at first direct, commented: “People continue to try to put some money to one side and mortgage holders are no different in also wanting to pay down their loan. However, as this study shows, more often than not they choose to feed extra money into a savings account.
“This is where an offset mortgage can offer the best of both worlds, acting as a savings account and a way to reduce their net borrowing, as the customer keeps the flexibility to access their savings if they need them.”
MoneyHighStreet comments: “As with all personal finance related decisions, deciding how to use your money has to be done based on your own particular circumstances.
“If you do though have some ‘spare’ cash, clearly it makes sense to use it optimally. If at all possible, paying off your mortgage is well worth considering or indeed it maybe time to consider an offset mortgage.
“Offset mortgage rates are now much more in line with standard mortgage rates and are therefore more worthwhile for more people.”
1 Based on the average mortgage loan of £119,700(CML all loans for house purchase, lending and affordability) and the average savings balance of £8,401 (Research carried out by Opinion Matters between 26/11/11 and 9/12/11 among 2002 UK adults). Offsetting estimate calculated using online Offset Calculator.