Make better use of savings with an offset mortgage

With just 33% of Cash ISAs offering a rate above 3%, changing to an offset mortgage may help you make better use of your savings and reduce the interest charged on your mortgage advises Defaqto.

Defaqto's whole of market research found that of the 307 Cash ISAs currently available, only 102 offer a rate above 3% and many also required consumers to fix their savings for at least 3 years and charged a penalty for withdrawals.

Kevin Bray, Insight Analyst at Defaqto said; "Offset mortgages are a good option for those looking to make their savings work harder.

"Customers taking out a £100,000 offset mortgage at rate of 2.74% and holding £20,000 in a linked savings account would only pay interest on the remaining £80,000 which could save more than £14,000 in interest and shave 5 years off your mortgage term.  Compare this to £20,000 in a Cash ISA with an average rate of 2.40% where the return would only be less than £12,000".

But Defaqto warns consumers to choose carefully.  My Bray continued; "For the right offset mortgage look beyond the cheapest rate on offer.  Look for specific product features that suit your financial needs as these vary enormously. We analysed 157 offset mortgages for our Star Ratings and found the most common features to be linking multiple accounts to the mortgage, flexible payment options and access to savings at any time.  These might not suit everyone so it's important to check what you are getting before you commit".