Andrew Hagger: Offset mortgage offers hard-pressed borrowers the opportunity to save thousands of pounds

But many people may not realise that there is the potential to save a lot more.

Whether it’s squeezing a little extra interest out of a savings account, saving a few pounds by moving car insurance provider or changing gas and electricity supplier, there’s plenty of switching and saving going on.

However, there’s still an area where people have the chance to save a much bigger chunk of money for very little effort – by taking out an offset mortgage.

I’m not talking about saving the odd few pounds; this breed of mortgage product offers the opportunity to save thousands of pounds, or to trim years off the term of your home loan just by being more organised and smarter with your money.

With savings rates still barely above record lows, offsetting your credit balance(s) against your mortgage is what they call a no-brainer, especially for higher rate taxpayers.

With an offset mortgage you don’t have to pay any tax on your savings interest and the rate of return that you receive is effectively the same as your mortgage rate. Another key plus point is that you always retain access to your entire savings balance in case your circumstances change at a later date and you need to dip into it.

Yet recent statistics reveal that less than one in ten borrowers consider an offset product when taking out their mortgage. A major reason for this take-up is that it’s perceived as a complex product suitable only for the super-wealthy, but both of these assumptions are wide of the mark, as I’ll illustrate later.

Another issue is that not all banks and building societies provide an offset facility, and therefore some customers are missing out because they aren’t given the chance to take advantage of the financial benefits and flexibility of an offset product.

Along with Barclays and First Direct, Yorkshire Building Society is one of the big players in the offset market and, unlike some providers, it allows offset to be used on its entire range of standard mortgage products with just a 0.2 per cent loading on the rate.

Offset is available across a wide range of loan-to-values (LTV) with some of the top current deals: First Direct’s two-year fix at 3.19 per cent and £499 fee up to 65 per cent LTV; Chelsea Building Society’s three-year year fix at 3.44 per cent and £395 fee to 70 per cent LTV; and Clydesdale Bank’s two-year discount at 3.79 per cent to 80 per cent LTV with £999 fee (£499 existing customers).

To give you a taste of the savings you can achieve with this type of mortgage and to prove that it is a viable option for those with even a fairly modest savings balance or those who intend to save on a regular basis, the following numbers speak for themselves.

For someone with savings of £5,000, offsetting it against a £100,000 mortgage at 4 per cent would save interest charges of £8,016 and in the process take one year and three months off the term of a 25-year mortgage.

Similarly, if you can put £150 a month into your savings account you can save £20,518 in mortgage interest charges and cut three years and two months off the length of your mortgage, ending up with a savings balance of £39,300 when the mortgage is repaid.

In the past, people have opted for a standard mortgage and not given the consequences a second thought. But with a growing number of new and more competitive offset options to choose from, more borrowers would do well will take advantage of the long-term financial benefits.

•Andrew Hagger is head of communications at www.moneynet.co.uk