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  • FIRST POST
    • scoobydoo789
    • By scoobydoo789 11th Feb 18, 4:16 PM
    • 9Posts
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    scoobydoo789
    What are the downsides of an offset mortgage?
    • #1
    • 11th Feb 18, 4:16 PM
    What are the downsides of an offset mortgage? 11th Feb 18 at 4:16 PM
    So we have ended up in the fortunate position of having the option to pay off our mortgage, but before we do so are considering an offset mortgage. There are a few reasons:

    1. Completely paying it off would leave us with no savings, so some mortgage would be needed anyway as a safety buffer.

    2. We have no other debt, but like the idea of a credit line in case of an emergency. Mortgage rates seem like cheap credit (if paid off fast), and access to the money would be in place instantly.

    3. We won't inherit anything so we need to bear that in mind. One of us doesn't have any pension yet so we need to sort that out as we're almost 40. Diverting money into pension rather than mortgage seems like a sensible thing to do.

    On the surface, an offset mortgage feels like a 6 figure credit line at whatever rate I negotiate, and frankly that's got to be cheaper than a private loan (as long as paid off quickly). I have no intention of using the mortgage to buy anything really and granted, I won't make anything on the cash that's sitting there - but I wouldn't make anything on it if I paid it off either - so its not like I'm any worse off?

    So what am I missing? Why not take an offset and have a big line of credit if I ever wanted it?

    Thoughts appreciated!
Page 1
    • Glover1862
    • By Glover1862 11th Feb 18, 4:48 PM
    • 254 Posts
    • 125 Thanks
    Glover1862
    • #2
    • 11th Feb 18, 4:48 PM
    • #2
    • 11th Feb 18, 4:48 PM
    You'll pay s little more for the offset, I am doing something similar , my offset is 0.2% more, I think it is worth the extra.

    Ive gone for a variable offset for the term, 20 years in my case. I hope to to be fully offset in about 5 years, after that I pay no interest so not really concerned what interest rates do, if they start to go up now it will only be on the difference between mortgage and saving. Eventually I hope to have both the Savings and mortgage paid, easy to credit for the term, no messing about changing mortgage and product fees,so yes I think not many downsides, better than overpaying in my opinion.
    Last edited by Glover1862; 11-02-2018 at 4:54 PM.
    • scoobydoo789
    • By scoobydoo789 11th Feb 18, 5:06 PM
    • 9 Posts
    • 2 Thanks
    scoobydoo789
    • #3
    • 11th Feb 18, 5:06 PM
    • #3
    • 11th Feb 18, 5:06 PM
    Thanks - that's helpful. Lets say the mortgage balance is 100k, and I have 100k cash already, then I don't really need to care about the interest rate right (unless I spend some of the 100k at which point I'm paying interest on it)? And if I were to lock the rate for a period - then ultimately if something comes along that earns me more than the interest rate on my cash, then there's nothing to stop me moving the cash into that right?
    • Thrugelmir
    • By Thrugelmir 11th Feb 18, 5:15 PM
    • 57,432 Posts
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    Thrugelmir
    • #4
    • 11th Feb 18, 5:15 PM
    • #4
    • 11th Feb 18, 5:15 PM
    Why would you need to have access to a £100k of cash?

    There's no disadvantages to having an offset mortgage. Other than has been previously mentioned in that you'll pay for the facility in terms of a higher interest rate.

    The product works for those that need require it. As interest rates rise again their appeal will grow again.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Glover1862
    • By Glover1862 11th Feb 18, 5:34 PM
    • 254 Posts
    • 125 Thanks
    Glover1862
    • #5
    • 11th Feb 18, 5:34 PM
    • #5
    • 11th Feb 18, 5:34 PM
    Thanks - that's helpful. Lets say the mortgage balance is 100k, and I have 100k cash already, then I don't really need to care about the interest rate right (unless I spend some of the 100k at which point I'm paying interest on it)? And if I were to lock the rate for a period - then ultimately if something comes along that earns me more than the interest rate on my cash, then there's nothing to stop me moving the cash into that right?
    Originally posted by scoobydoo789
    Yes, basically correct as far as I know. Only reason I didn't go for a fixed rate offset is they generally come with a early repayment charge within the fixed period, if you are fully offset then makes no difference where rates go, if you decide to move or want to raise funds then makes sense to have no erc. Also, offsets have quite high product fees, mine will be a £999 but it's for the term, paying that every 2 or 5 years hurts especially as you will never make the fees back as you pay no or very little interest.
    • scoobydoo789
    • By scoobydoo789 11th Feb 18, 6:06 PM
    • 9 Posts
    • 2 Thanks
    scoobydoo789
    • #6
    • 11th Feb 18, 6:06 PM
    • #6
    • 11th Feb 18, 6:06 PM
    Sounds like its a no-brainer then; a simple way to have liquidity of cash for the future, but also reduce the mortgage cost. Thanks for the info, glad I asked!
    • dimbo61
    • By dimbo61 11th Feb 18, 6:33 PM
    • 9,750 Posts
    • 5,253 Thanks
    dimbo61
    • #7
    • 11th Feb 18, 6:33 PM
    • #7
    • 11th Feb 18, 6:33 PM
    Do you have a mortgage at the moment ?
    Costs of setting up any mortgage can be hundreds if not thousands of pounds.
    You will pay a slightly higher rate of interest.
    • getmore4less
    • By getmore4less 11th Feb 18, 10:22 PM
    • 31,366 Posts
    • 18,795 Thanks
    getmore4less
    • #8
    • 11th Feb 18, 10:22 PM
    • #8
    • 11th Feb 18, 10:22 PM
    offset have/had a place.

    The days when rate margins were low fees were low and the tracker rates were base +<1% and STOOZING(free money) was easy they were a no brainer.

    These days you can structure lower mortgage rates than savings to keep the flexibility at lower cost.

    Although the interest rate my not matter until you use the line of credit setup costs will.
    • Thrugelmir
    • By Thrugelmir 11th Feb 18, 10:30 PM
    • 57,432 Posts
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    Thrugelmir
    • #9
    • 11th Feb 18, 10:30 PM
    • #9
    • 11th Feb 18, 10:30 PM
    On the surface, an offset mortgage feels like a 6 figure credit line at whatever rate I negotiate
    Originally posted by scoobydoo789
    Miss this earlier. There's negotiation you apply , the lender offers.

    If you intend fully offsetting. You need to remember that you'll be still required to make the full monthly mortgage repayment every month. As a consequence you'll need to reduce the offset account balance to keep it in line with the mortgage balance. As there'll be no benefit on any excess held.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • unkle
    • By unkle 11th Feb 18, 11:07 PM
    • 70 Posts
    • 41 Thanks
    unkle
    Miss this earlier. There's negotiation you apply , the lender offers.

    If you intend fully offsetting. You need to remember that you'll be still required to make the full monthly mortgage repayment every month. As a consequence you'll need to reduce the offset account balance to keep it in line with the mortgage balance. As there'll be no benefit on any excess held.
    Originally posted by Thrugelmir
    I have an offset with First Direct, the only mortgage payment I have to make is the interest, which when fully offset is zero.
    • Glover1862
    • By Glover1862 11th Feb 18, 11:11 PM
    • 254 Posts
    • 125 Thanks
    Glover1862
    I have an offset with First Direct, the only mortgage payment I have to make is the interest, which when fully offset is zero.
    Originally posted by unkle
    You must be on interest only then?

    With a repayment only the interest element is 0 the capital still needs to be repaid. Im ok with that as come full term youll have the offset savings plus the capital will be paid
    • zagubov
    • By zagubov 12th Feb 18, 1:07 AM
    • 15,114 Posts
    • 129,191 Thanks
    zagubov
    First Direct Offset mortgages are nominally interest-only but will provide info for how to repay them as if they are repayment.

    They are very flexible but if you decide to convert them to a repayment mortgage, they're unnecessarily argumentative, but will give way eventually out of logical necessity. You'll find yourself amazed that you're the one paying them for the service of renting money from them, although they might call it borrowing.
    There is no honour to be had in not knowing a thing that can be known - Danny Baker
    • lisyloo
    • By lisyloo 12th Feb 18, 7:21 AM
    • 21,478 Posts
    • 10,337 Thanks
    lisyloo
    I believe there!!!8217;s a downside if you ever need to claim means tested benefits.

    If you have say £200k mortgage and £100k savings then you!!!8217;re counted as having the savings.
    If you just had £100k mortgage then you have no savings.

    I!!!8217;ve personally not worried about this because I!!!8217;m married and we both work and we!!!8217;ve never been in a position to claim benefits in the last 28 years (apart from JSA which is not means tested).
    • silvercar
    • By silvercar 12th Feb 18, 8:11 AM
    • 36,662 Posts
    • 154,738 Thanks
    silvercar
    I believe there's a downside if you ever need to claim means tested benefits.

    If you have say £200k mortgage and £100k savings then you!!!8217;re counted as having the savings.
    If you just had £100k mortgage then you have no savings.

    I've personally not worried about this because I'm married and we both work and we've never been in a position to claim benefits in the last 28 years (apart from JSA which is not means tested).
    Originally posted by lisyloo
    It depends how the offset is structured. Some just have a negative balance each month, so no separate savings pot.
    • getmore4less
    • By getmore4less 12th Feb 18, 8:52 AM
    • 31,366 Posts
    • 18,795 Thanks
    getmore4less
    The one account was a CAM style(securd OD) offset BUT that was a rubbish product with high rates.

    Barclays could be structured as interest only and as a CAM using the mortgage current account BUT they have changed how that works so it may no be possible now.

    Not sure if any of the current lenders offer CAM style now.
    • Thrugelmir
    • By Thrugelmir 12th Feb 18, 11:07 AM
    • 57,432 Posts
    • 50,719 Thanks
    Thrugelmir
    They are very flexible but if you decide to convert them to a repayment mortgage, they're unnecessarily argumentative, but will give way eventually out of logical necessity.
    Originally posted by zagubov
    Regulatory requirements have required lenders to take certain actions for some time now. Switching from interest only to repayment being one particular instance. An argumentative customer is a call centre operatives worst nightmare.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
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