Can an offset beat the rate rise? by Finance News Bulletin

Published: 15/12/07

Homeowners could cancel out the effect of two further interest rate rises with an counterbalance mortgage and less savings cash than they thinkaddition UP: Offset mortgages can bring the benefits of overpaying but leave funds obtainable for emergenciesDon't miss your chance to tell us what you think of This is cash and help us shape its futureSorting your finances is simple, so simple you can do it in eight steps Forget the rest and read this

While many borrowers see counterbalance mortgages as the preserve of the wealthy, households with now £14,000 value of savings and a £150,000 homeloan could knock 05% of their mortgage interest rateinvestigate by price comparison site moneysupermarketcom shows that homeowners borrowing £150,000 against a £200,000 home could knock their follower rate down from 5

5% to 5% on an Intelligent Finance offset mortgage by using £13,761 value of investmentsOffset mortgages allow borrowers to balance their investments and profits against their mortgage amount, in a savings and/or current account, reducing the overall debt and subsequently the interest salaried In return for this they forfeit any interest on savings and current accountsThe advantage of an offset contract over overpaying a traditional loan is that the savings and income can be drawn on if needed, or built up to slash repayments further

Louise Cuming, head of mortgages at moneysupermarketcom, supposed: 'Taking an holistic view to mortgages and savings can be a much more effective method to manage borrowing'Though they may not realise it, many households looking for a novel mortgage would be better off with an offset mortgage, and yet offset mortgages only account for a minority of the marketplace Unfortunately the bulk of customers tend to go back to what they understand – contemptible, short-term deals

'However, offsets look set to produce in popularity With more than 30 providers now offering offset products and the required level of investments no longer prohibitive, I believe many more populace are going to be converted'dissimilar lenders offer offset mortgages with a variety of features that may suit individual borrowers more than just chasing the best rate Intelligent Finance offers a money Isa that can be set against the mortgage for tax-free saving, while the One Account allows credit card, loan and mortgage borrowing to be undertaken at one speed

Meanwhile, Clydesdale Bank allows up to six current accounts to be counterbalance against a home loan, allowing relations members to all chip in earnings against the debtWhile offset mortgage tax are generally higher than the best customary homeloans, they have fallen over the past few years as competition has greater than before Britiannia Building Society has just launched an offset deal that tracks the bottom rate plus 06% - at present 5

6% Other High Street lenders offer similar lifetime tracker deals Yorkshire Building civilization has an offset deal at 545%, while Abbey has one at 5

49%You say that 'Intelligent Finance offers a cash Isa that can be put against the mortgage for tax-free saving'If you offset investments against your mortgage its duty free anyway as you don't receive interest on the savings, you save interest on the loan in its place, which isn't taxable This doesn't seem to be a very efficient product

Also, the banks are not stupid counterbalance mortgages usually carry a higher rate in the first placeWhy would you want to offset a money ISA The main benefit of an offset mortgage is that you put on't pay tax on your interest

With a cash ISA there is no tax to pay So why would you go for an IF 510% offset ISA when you can get 55% elsewhere

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