First Direct

First Direct

August 20, 2012 07:58 ET

Knock GBP 2,100 Off University Tuition Fees With an Offset Mortgage

LONDON, UNITED KINGDOM--(Marketwire - Aug. 20, 2012) - It's the time of year again when parents are preparing their children to fly the nest and head to University. Following this year's substantial rise in tuition fees, first direct suggests a way to reduce the cost of sending a child to University by using its offset mortgage.

Over a 3 year course at University a student could pay £27,000 in tuition fees alone. Whilst student loans are available to cover this cost it's worth remembering that, as well as the amount borrowed, there will be interest to repay1. As a result almost two thirds of parents are planning to save more to help contribute to University costs2. 15%2 of parents in the UK are hoping to cover the full cost of their child's tuition fees and living expenses and over 30%2 will pay the majority.

By offsetting savings held aside to pay tuition fees, parents will reduce the amount of mortgage debt which is subject to interest. As a result, for those parents who require a mortgage and have savings ready and waiting to pay for their child's degree next year, an offset mortgage could save them nearly £2,100 in just three years.

Interest saving3

Parents who've planned ahead and already amassed savings to pay for their child's education when they go to University in September 2013 could save nearly £2,100 in interest, effectively reducing the impact of tuition fees.

Offset savings total Monthly mortgage payment Total mortgage payments for the year (a) Total interest saved (total yearly payment without offset savings of £11,997.12 - a)
The year before child starts Uni £27,000 £915.03 £10,980.36 £1,016.76
Child's first year at Uni £18,000 £941.95 £11,303.40 £693.72
Child's second year at Uni £9,000 £970.23 £11,642.76 £354.36
£2,064.84

However, even parents whose children are matriculating this September can use the savings set aside for University fees to shave nearly £1,050 in interest of their mortgage.

Offset savings total Monthly mortgage payment Total mortgage payments for the year (a) Total interest saved (total yearly payment without offset savings of £11,997.12 - a)
Child's first year at Uni £18,000 £941.95 £11,303.40 £693.72
Child's second year at Uni £9,000 £970.23 £11,642.76 £354.36
£1,048.08

Ian Bartholomew, Senior Mortgage Manager at first direct commented:

"Sending a child to University can be expensive and a student loan can haunt them for years after they've graduated. For those parents who've saved money for their child's education an offset mortgage is a great idea. Whilst the savings are sitting in their account waiting to pay tuition fees they're also reducing the interest payable on their offset mortgage."

The direct bank has created an offset mortgage calculator and overpayment calculator to illustrate both possible savings and reduction of mortgage term with an offset mortgage and results can be tailored to the individual's personal situation.

Notes to Editors

1 Student loan amounts and interest rates taken from http://www.direct.gov.uk/en/EducationAndLearning/UniversityAndHigherEducation/StudentFinance/index.htm?PRO=hp&CRE=pop

Income per year Interest rate on student loan
Whilst studying Rate of inflation plus 3%
£21,000 or less Rate of inflation
£21,000 - £41,000 Varies between the rate of inflation and the rate of inflation plus 3% depending on income
£41,000 or more Rate of inflation plus 3%

2 Survey carried out on behalf of HSBC by Opinion Matters among 1,009 UK adults with children under the age of 18 between 7th and 15th June 2012.

3 Mortgage savings calculated using the first direct 75% LTV Lifetime tracker fee free offset (currently 3.99%) on a £135,000 mortgage. Over a 15 year term, with capital repayment and without any offset savings, the monthly payment is £999.76, which equates to a yearly amount of £11,997.12. The amount of offset savings is assumes to remain the same each year, i.e. no withdrawals are made.

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first direct facts

  • Winner of the Which? Best Financial Provider award 3 years running
  • Top financial institution in the Which? Customer Satisfaction Survey with an all-time high of 93%
  • Ranked first in the Retail Banking Satisfaction Study by J D Power & Associates for two years running
  • Recently (Feb 2012) received 90% customer satisfaction in a survey carried out by MoneySavingExpert.com

first direct provides both telephone banking and online banking services to its 1.2m customers. It offers a full range of personal banking products including its award winning Current Account and offset mortgages.

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