Offset (and Scottish Widows)

osaddict · 10 July 2017 at 2:08PM

Hey guys,
A broker has recommended a mortgage to me, which has an offset facility. As I have some savings this looks like a handy addition. It seems that this mortgage *doesn't* allow for regular overpayments, just one lump sum per year. The question I have directly here:

* If I were to 'overpay' the mortgage by 1k vs put 1k into the offset account - is the result the same? - Assuming in both cases I told the lender the goal was to keep existing monthly payments the same, so, reduce the term.

I am lead to believe it is but I don't entirely follow the logic of this.

On a side note - my broker has recommended a Scottish Widows 2 year fix, with offset facility. This seems to suit me well and has a good rate. Anyone on here got any experience of this product?

Thanks!

amnblog · 10 July 2017 at 2:12PM

If the desired result is to pay the mortgage off quicker, then yes, the result is the same whether you repay the £1,000 off of the capital or offset it.

Offsetting it means that the lender is treating the mortgage as if that £1,000 were repaid from an interest calculation point of view.

This is a good product, but only someone who knows your case can say if it is right for you.

If you don't follow the logic of what your broker is saying, ask them to explain it again.

getmore4less · 10 July 2017 at 2:27PM

Offset allow the equivalent of unlimited overpayment with a borrow back facility.

The effect on cost and term are the same as overpayment as long as you don't spend/withdraw the money.

With both you are just borrowing less by the same amount so works out the same.

osaddict · 10 July 2017 at 2:49PM

If I take my current mortgage situation, If I make a 5k overpayment then that's it, it's gone. I can't claw it back.

If I'm under the offset route, and a 2 year fix.. If I put the 5k in the offset, don't touch it.. What happens at the end of the fix, when presumably I move to another provider?? The offset account is just an un-associated account.

amnblog · 10 July 2017 at 3:04PM

osaddict wrote: »

If I take my current mortgage situation, If I make a 5k overpayment then that's it, it's gone. I can't claw it back.

If I'm under the offset route, and a 2 year fix.. If I put the 5k in the offset, don't touch it.. What happens at the end of the fix, when presumably I move to another provider?? The offset account is just an un-associated account.

If you move lender, you can close the offset account and put the balance into the pot to redeem what you have outstanding (by then, there will be no early repayment penalties).

osaddict · 10 July 2017 at 3:57PM

Thanks for the reply. That's helpful... so under the following scenario:

1. Start an offset with 50k, pay in 20k into offset account over life of 2 year fix. Move offset to a new provider. Move 50k into a different savings account.

2. Start a typical fix, pay in 20k as over payments, for simplicity assume amounts and dates are the same as above.

Would I be correct in saying that 1. would be the better situation - if you could afford it, as you'd be 'over paying' the same, 20k, but the 70k sitting there would mean you're overpaying on a smaller pot?

amnblog · 10 July 2017 at 4:00PM

Now you've lost me.

Are you saying you have £50K to offset day one?

osaddict · 10 July 2017 at 4:29PM

As an example, yes. So view this as say someone's 'rainy day fund' or something... so you'd want to keep it at the end of the fix and not dump it onto the mortgage at the end.

amnblog · 10 July 2017 at 4:33PM

If you are saying, can I offset £50K and put in somewhere else (not towards the mortgage) later - yes you can.

That's the point.

A £50,000 over payment would need to be borrowed back if you want it.

£50,000 offset is still your money.

osaddict · 10 July 2017 at 4:58PM

So in my y two situations above, I have overpaid £20k on the mortgage over two years... But in the first scenario I have had 50k sitting there reducing the size I have to pay interest on. So, it works out better. Well, by my logic anyway.

Offset (and Scottish Widows)

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