The offset mortgage is a relatively new kid on the block, and has taken the industry by storm so far. Although it is nowhere near catching up the traditional favourite, the repayment mortgage, it has proven to be a strong up- -and-coming contender. That’s why virtually all lenders now offer an offset mortgage as part of their portfolio.

A recent study carried out by Abbey clearly demonstrates the real selling point of the offset mortgage. It actually gives you the opportunity to pay your mortgage off early, thus saving you thousands of pounds. The study showed that by saving just £3 a day, a mortgage of £180,000 at 4.99% could be cut short by three and a half years, with a saving of almost £22,000.

So in basic terms, if you make a sandwich every morning rather than buying lunch at the local shop, then you could save £22,000!

At first, the offset mortgage was considered to be suitable only for those with large savings. Of course, having savings helps immeasurably as it means you pay a lot less in interest. But all you really need is a willingness to save and to put in a little extra effort to overpay as and when you can.

The offset mortgage works by linking to a savings account and with many, but not all lenders, a current account. The interest is calculated daily so if you get paid a salary of £1500 for month for example, then as far as the interest calculation is concerned, the amount will be less for as long as that extra is sitting in the account.

There is disagreement within the industry, for example David Hollingsworth, spokesperson for London & Country Mortgages, warns: “Offset mortgages carry higher rates of interest, so you need to be able to make up the difference.” Whereas a spokesperson from First Direct said: “You don’t need a great lump sum. Just a couple of thousand pounds chips away at your mortgage”.

The reason why offset mortgages are not the obvious choice for everyone is due to the fact that they are more expensive to run. On average they charge 1% per cent more than other mortgages, so you need to be wiling to pay more than you would necessarily need to, keeping the long-term benefits in mind.

Play the offset game

Offset mortgages are an excellent way to get full control of your money when they are linked to a current account. Every penny that stays in the bank is saving you on interest, so naturally you’ll be keen to keep it in there for as long as possible! There are ways of helping this along, for example, you can use a credit card for all your purchases, and pay the balance off at the end of each month. That way, your salary stays in the current account for longer. You can also move all your direct debits to the end of the month so, again, the money sits in your bank account for a longer period of time.

Every penny counts

You can also save more by switching to the cheapest utilities suppliers, moving credit cards to make the most of the cheaper interest rates, and searching for the cheapest insurance deals.

The Internet is the place to go for the cheapest deals on insurance, you will also find a lot more information on offset mortgages. Simple search on ‘offset mortgage’ to find out all you need to know. When it comes to choosing your mortgage however, always seeks independent advice – it’s too complicated a decision to go it alone. After all, the right decision could mean a difference of thousands of pounds in the long term.

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