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Offset deals offer best of both worlds

The Bank of England’s base rate is now 0.5% and likely to remain at this level for a significant amount of time, according to some.

This is welcome news for borrowers who opted for a base rate tracker some months ago or are coming off a fixed rate deal onto a lower SVR as they may find themselves with significantly lower repayments and cash to spare.

The big question will be what to do with their extra cash – save it or overpay on their mortgage?

This can be a bit of a dilemma. Savings rates are now less than exciting, especially when tax on interest is taken into account.

Overpaying on the other hand might seem like a much more rewarding prospect as borrowers can save more in reduced interest payments on a mortgage than they can earn by putting money away.

And with house prices still falling, overpaying can also protect home owners against eroding property values by preserving or indeed reducing their LTVs.

Yet in a time of economic uncertainty cash is king and many home owners may be loathed to tie their savings up in overpayments when family or employment circumstances might require them to access that cash at short notice.

Offset mortgages offer the best of both worlds. They can put savings into an offset-linked account that allows them to effectively overpay on their mortgage, while still having the peace of mind that they can access their money immediately should times get harder.

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