Newsletter 7 - Live long and prosper!
Prosper, Episode 2 – The best savings rates on the market
Whilst not suitable for everybody, Offset Mortgages provide what is effectively the highest savings rate of return at present. If you have savings on deposit and a good portion of equity in your property, this option can work really well for you. There are also some competitive savings accounts available as banks scramble for what cash is out there…
With an offset mortgage, your main current account or savings account are linked to your mortgage and are usually held with the lender. Each month, the amount you owe on your mortgage is reduced by the amount in these accounts before working out the interest due on the loan. So as your current account and savings balances go up, you pay less on your mortgage. Therefore, your potential net rate of return can be very attractive (it is the mortgage rate you are paying), particularly to higher rate taxpayers.
A current account mortgage is similar to an offset mortgage in that it offsets the balance of your savings against your mortgage. However, in this case, rather than your mortgage and current account being separate pots of money, they are usually combined into one account. This means that the account acts like one big overdraft.
This can be useful for self employed clients who have variable income streams and also who have their funds for payment of tax on deposit. It also has the built-in flexibility to make overpayments and underpayments. Obviously, the larger the amount of funds you have to Offset, the more productive this will be.
There are also some excellent savings rates available at present – good net real rates of return – accounting for current low levels of inflation.
For example, the Scottish Widows Bank Direct Transfer Account is paying 3.01% gross (2.51% AER variable) including a 6 month bonus of 1.00%. The rate following the bonus period is guaranteed to be no less than 0.25% below Bank of England Base Rate until 31 December 2012. Several lenders are also offering competitive rates on Fixed interest savings bonds.
However, when you look at the potential rates of return available with Offset Mortgages and the interest that you can save over the term of your mortgage by repaying early, you will see what an excellent option that really is.
If you would like some more information on any of these, please do Contact Us