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5 ways to use a flexible offset mortgage to navigate uncertainty

4th October 2011 Print

In these times of economic uncertainty, rising inflation and seemingly ever increasing fuel prices first direct argues that an offset mortgage is a useful tool for homeowners to make the most of their money.

Here we flag five ways to make a first direct offset work for you

1. Make unlimited overpayments

As first direct's lifetime offset tracker has no early repayment charge, by making regular overpayments of just £50 per month for the duration of their mortgage homeowners could shave nearly three years off the term and over £6,200 off the total cost.

The old adage ‘make hay whilst the sun shines' holds true as those who've made overpayments during the low base rate environment are ready to significantly benefit should interest rates rise and could move to lower monthly payments if their finances become tighter in the future.

2. Use your savings to offset your mortgage

first direct has found that on average offset mortgage customers hold around 20% of their mortgage balance in savings.  By using these savings to offset their mortgage balance, 40% tax payers would receive the equivalent savings rate of 4.92% AER.

Considering savings rates on offer owing to the current low base rate environment, offset savings could offer a full 4.62% AER above the average instant access savings account available at the moment (0.3% AER).

Homeowners who choose to use their £30,000 savings to offset a £150,000 mortgage could reduce their monthly payments by nearly £70 each month, save over £20,500 on the total cost of their mortgage and still have their original £30,000 savings intact.  Furthermore, if they decide to maintain their monthly payments at the higher level, with the difference being an overpayment, they could reduce the total cost even further (by over £26,000) and reduce the term of their mortgage by 37 months.

3. Offset your current account balance

Although all first direct's accounts remain separate, to make it easier to identify balances in each account, customers can still offset their instant access savings accounts and credit balances in their current account.  Every penny in each of these accounts will be automatically offset against their mortgage whether it be 30p for 3 days or £30 for the duration of the loan.  Basically every penny works its hardest to reduce the debt.

4. Redraw previous overpayments

It can make sense for people to stay put and improve their existing property rather than move to a bigger place. With a flexible offset mortgage it is possible to redraw funds previously overpaid to make improvements to the home or important life purchases, rather than arrange a separate loan. first direct recommends customers review their mortgage plan to ensure it remains on track to repay all outstanding capital by the end of the mortgage term before they arrange to redraw funds.

5. Take your rate to your next property

With the Bank of England Base Rate at an all-time low and murmurings that it may go even lower over the next few months now is the time to secure a fabulous rate.  However, over the years it takes homeowners to pay off their mortgage it's likely that rates will eventually go up and it's unlikely that they will want to remain in the same home for the whole time.

Taking a flexible first direct offset mortgage now means that people can potentially transfer (port) their low mortgage rate to their next property without incurring another product fee.

Richard Tolchard, Senior Mortgage Product Manager at first direct commented: "first direct's flexible offset mortgage is the real deal, offering the flexibility savvy homeowners need during these uncertain times. Our five flags can help them navigate the choppy economic waters ahead."