Offset mortgage/savings and interest rate question

pauljoecoe

I cant really get my head around this one so if someone can help it would be appreciated.

I have an 80,0000 mortgage with first direct and it is currently offset with 40,000 in savings. The mortgage rate is 2.69% - tracker.

So effectively my savings are receiving 2.69 % interest (tax free so that's equivalent to a fair amount more on a normal savings account)

If interest rates rise then so does the interest rate on the savings - so am i worse off with interest rates going up or not? (I feel I must be but can't get my head around how that works. I will pay more interest on the mortgage but will receive more on the savings????)

kabads

It all depends what rate you get with the saving account. You save the amount of the mortgage rate in an offset, but different savings accounts offer different rates.

TrickyDicky101

Since your mortgage balance (amount owed £80k) is greater than your savings balance (£40k) any increase in interest rates will cost you money. The offset simply means that you only pay interest on the net amount.

Burridge60

You are worse off if you can get a better return tax free at no risk elsewhere than by having it offset against your mortgage.
Even better off if you pay higher rate tax.