Offset mortgage - with or without current account

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julliff
julliff Posts: 625 Forumite
in Mortgages & endowments
hi,

Can anyone explain to me the advantages of having your current account linked to an offset mortgage?

I am trying to decide between Britannia (without c/a) or IF (with). Even with the illustrations it doesn't seem to be comparing apples with apples!:confused:

Any explanations gratefuly received!

Many thanks
"Carpe Diem"
MFW - Starting mortgage April 2010 - 120,000
MFW - restart Nov 2013 - £70207.88 & £14086.49
Current balance - £62459.49 & £10380.19

Comments

  • jimmmyc
    jimmmyc Posts: 131 Forumite
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    I have an offset with Barclays, we cashed in our endowment from the previous mortgage which came to about £20K, with that in the account, it is having a good effect on lowering the outstanding amount. If it was in a savings account, I wouldn't get as much interest and would have to pay tax.
    If you don't have a lot of savings or are prone to overdrafts I wouldn't recommend it. Better going for a reduced rate mortgage with no tie ins.
  • Jays
    Jays Posts: 410 Forumite
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    Hi

    We are off-set with First Direct (part of HSBC, but you would not know it, they are so user friendly, always answer the telephone from a British call centre, and usually have the answer or will certainly pass you on to a department who can).

    Anyhow, back to your question, our mortgage is off-set against my current account, my husband's current account, our joint account and two savings account. This means all our money is weighed against the debt in the mortgage thereby reducing the interest we pay on the mortgage. If you go for an off-set account without a current account, your money in this account will not be off-set against your mortgage debt so, technically, I would not accept this as an off-set mortgage.

    When I was looking into this I got very confused with the One Account, which is an off-set account but everything is 'thrown' together so your account always appears to be in the red. It means all your savings etc, are already paid against your mortgage to reduce the debt.

    I would advise you to look at the First Direct mortgage before you make up your mind, if you go through London & Country (as Martin recommends) you may find they can get you a discount not available on the open market, they did for us.

    Have you checked out the thread on the sticky (top) of the Mortgages & Endowment Forum? It discusses the pros and cons of off-setting your mortgage. One thing to remember is you need about 30% (if I remember correctly) of saving to off-set against your mortgage debt to make it worth while off-setting.

    What ever you decide to do, good luck and best wishes,
    Jays
  • silvercar
    silvercar Posts: 46,968 Ambassador
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    I've got an offset without a linked current account, Its very easy to understand, you have your mortgage and you have alinked savings account - the offset bit. This operates like a normal savings account in that you can take money in and out of it.

    The clever bit is that you are charged interest on the difference between the amount of your mortgage and the amount in the offset (eg mortgage 100k, offset savings account 30k, your monthly mortgage payment would be based on 70k not 100k.)

    You can choose to pay the same monthly payment is if your offset account was empty, the extra money them counts as a capital repayment ans so you should pay your mortgage off earlier.

    Advantage of an offset is that you are effectively getting your net savings rate at your mortgage rate (very advantageous for a higher rate tax payer). The disadvantage is that the rates aren't the best available, which is why people reckon you need to have about 30% of your mortgage in savings.

    In practical terms you can put all your savings in the offset, knowing that you can get the money out at any time, something you couldn't do with higher rate savings accounts.
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  • canny_yorkshireman_2
    canny_yorkshireman_2 Posts: 250 Forumite
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    one of the key attractions of offset mortgages are they are very flexible and you can make overpayments of any amount or just put the overpayments into the savings accounts which ideally will be linked to the offset "if" also allow you to offset isa accounts which is very usefull if you want to maximise your annual allowence.The other benifit is that if you have spare cash in your current account for bills etc this also contributes to lowering the intrest paid so all in all a good way forward for individuals who can show constraint with their finances. the down side of offsets are it is very easy to use up and spend from the overspilll that the lenders will give you and the intrests rates are not cutting edge so you can save more per month on the best deals.
    hth
  • TangentMan
    TangentMan Posts: 204 Forumite
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    I think the question was not what are the benefits of an offset mortgage, but particularly the benefit of linking the curernt acocunt?

    Essentially it all depends if you plan to use the current account as exactly that, a current account. By having your current account linked to your mortgage you are automatically gaining the offset benefit of having your salary or other payments going into your current account being offset against your mortgage. If your mortgage is also on daily interest then you get that benefit immediately.

    If you do not link your current account to your mortgage (or simply cannot) then it is up to you to move money from your current account into your savings. Most people will not do this on a daily basis and therefore they will not get the same benefit.

    My personal view is that it would be better to link your current account. It obviously depends on circumstances, but if you get £1000 per month in salary into it, you are getting an offset on that balance even as it reduces as bills etc come out of it.

    Whereas if you cannot link your current account you are unlikely to move your whole £1000 into an offset linked savings account. You might move, say, £200 in which case you are only getting the benefit of that £200 per month and for a shorter period of time).

    I think the illustrations can't really show that sort of behaviour to be fair to them. You might want to have a look at some of the lender's websites - quite often they have a benefits calculator :-

    If.com http://www.if.com/MainIF.html

    woolwich http://www.woolwich.co.uk/content/opn/borrowing/calculator/default.htm

    And I am sure there are other providers out there and those lenders above might not have the perfect product for you.

    These enable you to play with your current account balance by putting in your income and an estimate of your out goings.

    Remember, if you have no intention of moving your current account to your mortgage lender (or, conversely no intention of getting a mortgage with your current account provider) then this is all a moot point.

    Hope this helps!
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