Low interest rate environment sparks high interest in compensatory mortgages


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CURRENT low interest rates mean it can be difficult to get the most out of your savings. The Bank of England’s announcement in early August that it was keeping its key rate at 0.1% came as no great surprise, but was not good news for those looking for good yields.

Any saver in 2021 will look forward to the heyday of December 2008, when the base rate was last above 2%. Current accounts, often aligned with the prime rate, are no longer the desirable savings mechanism they once were, and savvy investors are exploring alternative strategies to preserve and earn money.

The “compensatory mortgage,” which links a mortgage to a savings account with the same lender, is a product that has grown in popularity. Compensation mortgages use the savings account balance to reduce the mortgage balance, thereby reducing the amount of interest paid on the mortgage.

This is particularly appealing as many have accumulated savings by not spending as much as usual due to lockdowns imposed by the pandemic. Instead, money that would normally have been spent on vacations, dining out, or events and experiences has been saved. EY’s ITEM Club reports that an additional £ 30bn in cash was banked by UK households in the summer months of 2020, a trend that was repeated in the Channel Islands.

The recently launched Lifestyle Mortgage by Butterfield works as a compensatory mortgage and has been carefully designed by credit specialists to reflect the needs of today’s professional residents of the Channel Islands looking to buy or remortgage property.

In fact, our comprehensive portfolio of mortgages prioritizes customer needs and is based on our in-depth understanding of the local market, operating in the Channel Islands for over four decades, in addition to Butterfield’s mortgage experience at Bermuda, Cayman Islands. the islands and the United Kingdom.

Your savings work for you

So how does a compensatory mortgage work? Essentially, your savings, bonuses, or dividends are used to reduce – or offset – the interest you pay on your mortgage, without losing the ability to access your money whenever you want.

For example, if you have a mortgage balance of £ 400,000 and savings of £ 100,000, you will only pay interest on £ 300,000.

The advantage is that your savings work harder, which is particularly beneficial in an environment where you can have more and where interest rates are low.

In addition to saving interest, compensatory mortgages also make funds available instantly. Whether you wanted to undertake renovations, buy a second home, or make an investment, your funds would be immediately available.

For example, if you have a capital limit of £ 600,000, but you have only withdrawn £ 450,000, you have immediate access to £ 150,000.

Butterfield’s Lifestyle Mortgage offers the flexibility to suit the needs and compensation structure of the modern professional, as bonuses, dividends or commissions can be immediately put to use. There is also the benefit of not having any withdrawal fees or prepayment charges, if you wanted to repay earlier than expected.

With the aftermath of the pandemic of keeping interest rates low for some time – the Bank of England has suggested no increases are expected until 2022 at the earliest – savers must look for new ways to save money. increase their wealth and achieve good results. Return. In this context, it is not surprising that a compensatory mortgage is an attractive option.

If your savings can work harder for you, find out more about the Lifestyle Mortgage by visiting butterfieldgroup.com, or contact the team directly to have a conversation at [email protected] or 843,300.

Disclaimer: Your property may be repossessed if you fail to meet your mortgage payments. To apply, you must be 18 years of age and over and reside in Guernsey or Jersey. All mortgages are subject to status and appraisal.

Butterfield Bank (Jersey) Limited (BBJL) is regulated by the Jersey Financial Services Commission to conduct deposit-taking activities under the Banking (Jersey) Act 1991 (as amended), and the activities of investment, fund service activities and money service activities in accordance with the Financial Services (Jersey) Act 1998 (as amended). BBJL is registered under the Data Protection (Jersey) Act 2018 and is registered with the Jersey Companies Registrar for the purposes of the Companies (Jersey) Act 1991 (as amended). Headquarters Address: St. Paul’s Gate, New Street, St Helier, Jersey JE4 5PU. Company registration number 124784. BBJL participates in Jersey Bank’s depositors compensation program. The program offers protection for eligible deposits up to £ 50,000. The maximum total amount of compensation is capped at £ 100,000,000 in any five-year period. Full details of the plan and covered banking groups are available on the States of Jersey website (gov.je/dcs) or on request. The terms and conditions can be obtained from our website and copies of the latest audited accounts are available on request. BBJL is a wholly owned subsidiary of The Bank of NT Butterfield & Son Limited.

About Daisy Rawson

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