Renting out a room could shave 29 months off your offset mortgage

As first direct launches a range of new offset mortgage rates the direct bank has discovered that by renting out a spare room for just 5 years homeowners with an offset mortgage could reap the benefits.

With students returning to university and house prices remaining out of reach for many, now is the perfect time for offset mortgage holders to rent out their spare room, save money and reduce the term of their mortgage.  By using monthly rent to make mortgage overpayments the typical homeowner could shave 29 months off their mortgage and save over £1,028 in interest in just 5 years.

The Government's Rent a Room scheme means there are no tax implications for letting a furnished room in your home, up to the value of £4,250 per annum, so homeowners with space to spare could earn up to an extra £354 per month to put towards their mortgage costs.

first direct's offset mortgage allows unlimited overpayments.  By making monthly overpayments of £354 for 5 years on the direct bank's market leading 65% LTV 3 year fixed rate offset mortgage, currently 3.49% with a £499 booking fee, homeowners would save £1,028 in interest payments and pay their mortgage off 29 months earlier.

Richard Tolchard, Senior Mortgage Product Manager at first direct commented: "As long as all necessary precautions have been taken, having a lodger is a really easy way for homeowners to earn more cash and reduce the term of their mortgage.

"The added benefit of first direct's flexible offset is that if homeowners need access to the money they've overpaid they could redraw up to the original amount of the mortgage borrowing."