Fashion and mortgages are not normally words that appear in the same sentence, but occasionally a product emerges that adds a
spark to the market, that becomes 'the new black' as far as the industry is concerned. A few years ago, that product was flexible
mortgages (and in the future Gordon Brown would like it to be long-term fixed rates), but for the past couple of years it has been
the offset mortgage.
Offset deals work by setting the money held in savings and current accounts against your mortgage debt. So instead of earning
interest on your cash balances, you pay less interest on your borrowings. With a £100,000 mortgage and £10,000 in current and
savings accounts, you pay interest on the difference of £90,000.
The idea of offsetting is that, with less interest to pay, the mortgage is paid off more quickly and as a result costs you less.
For example, according to Emma Keens, spokeswoman for Woolwich, someone with a 25-year repayment mortgage worth £80,000 and £5,000 in savings,
paying an offset rate of 4.35 per cent, could pay off their loan two years and eight months earlier. This would save them £9,013 in interest.
