Offset Mortgage Question

straddie

KiKi wrote: »

However, not all offsets operate this way. I think First Direct operate quite differently, given some of the posts I've seen on here.

FD works by doing a sweep through all your linked accounts each night, totting up all your credits (current account balance, savings) and offsetting them against your debits (overdraft, mortgage). Interest is then calculated on the outstanding balance and added to your monthly payment.

The great thing about this is that you see the benefits of your savings immediately. You don't get any of this how-many-days-in-the-next-month business! Plus you can borrow back any capital you pay off the mortgage at any point (although it'll obviously need repaying again), so you still get the same effect as the Abbey account where the saved interest is accessible for you to tap into at any time. The FD offset is technically an interest only mortgage, and the capital you pay off is effectively a savings account used as a repayment vehicle.

bigturnip

M2U wrote: »

(a) "Maintain monthly amount" - which means that you'll keep paying your £900pm, but the amount of interest will be reduced due to your offset amount, and so you'll be paying off more of your capital balance in that month (which will reduce the interest charge next month ... and so on);

(b) "Reduce monthly amount" - which means you'll only pay the agreed capital repayment and the reduced interest charge - so with this option you'll have the saving in your monthly cashflow, but it won't pay your mortgage off any quicker, and you'll incur the same (before offset) interest charge.

Surely if you pay less each month (scenario b) you increase the amount in the savings account to offset the mortgage, therefore there is no difference between (a) and (b) at all, that's the whole point of an offset mortgage. Maybe in (a) the payments are locked away where as in (b) they are easily accessible as offset savings, but the way most offset mortgages work you can dip into what you've already paid off of your mortgage when you need to, so again there would be absolutely no difference.