An offset mortgage allows you to cut your monthly interest bill by setting your savings against the money you owe on your mortgage.
(For more about how this works, go to The offset mortgage.)
But it’s only worth doing if you have enough cash to make up for the fact that these loans tend to come with a higher interest rate than ordinary mortgages.
And that means keeping an average offset balance of a good few thousand pounds.
that’s why offsets tend to suit committed savers, the well off and the self-employed (who save their tax).
(To read more on this, visit Who should have an offset mortgage?)
Here’s how much you could save
How the Figures Stack Up
• A £100,000 mortgage and a £20,000 offset balance
A basic-rate taxpayer with a £100,000 25-year repayment mortgage at 6.25 per cent interest could clear it six years early by offsetting £20,000 of savings.
Taking into account the interest they would lose by not putting the cash into a market leading deposit account paying, say, 4.8 per cent after tax, and that they may be paying around 1 per cent more than with another type of loan, they could still be more than £12,000 better off over their mortgage term.
A higher-rate taxpayer could save almost £22,000 over the same period.
• A £100,000 mortgage and a £10,000 offset balance
A basic-rate payer offsetting £10,000 might end up almost £2,000 better off.
• A £100,000 mortgage and a £5,000 offset balance
A basic-rate payer offsetting just £5,000 could actually be almost £5,000 worse off.
But remember, these figures apply only to this exact scenario if you’re considering offsetting, it’s vital that you, or your mortgage adviser, do the sums for your particular circumstances very carefully.