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Offset mortgage rates at record lows

Written by: Christina Hoghton
The average fixed offset mortgage rate currently stands at 2.07%, its lowest ever level and a whopping reduction from 2.41% at this time last year, according to data site Moneyfacts.

An offset mortgage allows you to link your savings pot to your mortgage balance, with the savings being used to reduce the interest charged on the mortgage. Your savings will be “offset” against your mortgage balance, which means you’ll only pay interest on your mortgage minus your savings.

The financial information provider pointed out that the average fixed offset mortgage rate at 2.07% is even lower than the average fixed mortgage rate across the whole market, which currently stands at 2.30%.

Variable offset rates haven’t fallen to the same extent as equivalent fixed deals, with the current variable offset rate at 2.63%, little changed from a year ago.

However, offsets are not widely available at more expensive high loan-to-value levels, so the figure is slightly skewed. On a like-for-like basis there is a premium for an offset deal.

Limited choice

While offset rates are low, so are product numbers, when taken in the context of the wider market. Moneyfacts said that 232 offsets are currently on offer out of over 4,000 products in total.

“Savers have been hit from all angles recently, and rising inflation is just a further blow,” said Charlotte Nelson, finance expert at Moneyfacts. “With inflation eroding savers’ funds it is little wonder they are looking elsewhere to put their cash to better use, and using an offset mortgage could be just that.”

Offset mortgages are best for borrowers with a significant savings pot added Nelson. “With savings rates low it makes sense for those with a mortgage to utilise their cash savings within an offset facility to pay off substantial sums on their mortgage and become mortgage-free quicker than planned, and unlike with overpayments, borrowers can access the cash whenever it is needed.”

See’s Offset mortgage guide for more information.

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