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It feels like the gloomiest economy ever, but savvy money managers stand to benefit in these tough times – offset provider first direct has developed guidelines and tips designed to help them beat the credit crunch.

The first thing to do is to stay on top of your finances – first direct research reveals that 17 million people have lost track of their rate of interest on savings, while 43% of homeowners don’t know what interest they are currently paying on their mortgage. Keeping a close eye on interest rates will allow you to manage your finances better and ensure you are getting the best deal.

Home-owners with a pot of savings can reap rewards by switching to an offset mortgage. Offsetting could see a typical home-owner cut down the length of a £100,000 mortgage by close to three years, and save £18,322 in interest payments over the lifetime of a mortgage.

As well as helping borrowers repay mortgages faster, offsetting will also prevent savings languishing in under-performing taxable accounts. The average home-owner earns 4.6% on savings held in an offset mortgage, compared to just 0.18% return on a typical savings account, according to the bank.

The crash in interest rates from 5.5% to 0.5% over the past year could spell a windfall for home-owners – many borrowers now find themselves in the strong position of paying far less in interest payments. Any good adviser will tell these borrowers to consider overpaying – If their monthly payments has dropped, borrowers should continue paying at their existing rate – it will reduce their debt quicker and they shouldn’t even notice the difference.

first direct says: “We’re chipping away at record amounts of mortgage debt, with savvy savers starting to take advantage of the benefits of offsetting – our research reveals that new offset lending rose16 per cent in the last three months of 2008. In fact, offset mortgage lending now accounts for £1 in every £10 being lent to UK mortgage holders. In the past three years, 400,000 new offset mortgages have been issued, taking the amount of UK home-owners with an offset mortgage to 1.1 million.”

SOURCE: First Direct, 11/06/09

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