offset mortgage v pay of mortgage question

melliea72

Hi

I have an offset mortgage of apporx £255000 over 25 years to pay ...it allows me to pay off more if i choose with no penalty , i have approx £15,000 of savings should i use these to pay off the mortgage , leave the money in an offset account with the same bank (ie so it reduces the interest ) or put it into savings and use the interest from those to pay off the mortgage ?

any advice much appreciated !

Incisor

melliea72 wrote: »

Hi

I have an offset mortgage of apporx £255000 over 25 years to pay ...it allows me to pay off more if i choose with no penalty , i have approx £15,000 of savings should i

1. use these to pay off the mortgage
2. leave the money in an offset account with the same bank (ie so it reduces the interest )
3. put it into savings and use the interest from those to pay off the mortgage?

any advice much appreciated !

Only use option 3 if the interest you get is better than the mortgage rate [unlikely].

If you have any credit pay that off first, unless the rate is lower than the mortgage. Next, you should leave yourself a cushion against events and to allow yourself to buy stuff without credit. This is effectively option 2. £5,000 - £10,000 might be a good cushion.

Bear in mind if the bank goes bust, you could loose your savings and still owe the mortgage, and I think you might not be protected by the government in that case [anyone?]. So with option 2], maybe a good idea to keep a month or 2 payment in the offset and then the rest of your cushion elsewhere. After you have a cushion, then pay off the mortgage.

dimbo61

leave the money in the offset account to reduce the amount of interest you
will be paying on your mortgage each month ie 225k-15k =210k
If you carry on paying your normal mortgage payment each month the
money in the offset will help you pay off the mortgage several months if not years early.
Dont worry about the lender going bust I dont think the government could allow it !
£15,000 in savings is a good emergency fund ( in case of big unexpected bills) and by offseting this money and adding to it when you can you will build a pot for retirement or repaying the mortgage early. GOOD LUCK

ixwood

You have to consider ISAs too. The mortgage will be gone at some point, but the tax free status of your ISA money will remain (under the current rules). Once your (and your partners) cash ISA limit is full each year.

After that it's whichever earns/saves you most cash out of a savings account and a mortgage. The fact that interest will be taxed on a (non ISA) savings account means that it's very likely that the mortgage works out better than a savings account after you've used your ISA allowance.