Offsetting and Overpayments

MrsVanderkamp

Hello there, this is my first post so treat me gentle!

I have been reading everyone's inspiring stories for months now and your enthusiasm for the mission never ceases to amaze me. I just wish I had all this information years ago instead of wasting about 14 years on an interest only mortgage.

Anyway, it's all change now, we changed to part interest only, part repayment about 4 years ago (mainly to address the endowment shortfall) and then we changed to a C&G offset mortgage about 2 years ago. Last month, for the first time ever after feeling inspired by all of you, I made an overpayment of £70, and then another £40 this month, yeehee, it is such a lovely feeling to make an extra payment, even if they are only small amounts!

We currently have around £50k on capital & interest, and £29k on interest only, and my question is, when I make overpayments should these be to the capital and interest part or the interest only part? I can't seem to work out in my mind which is best.

Jonbvn

Assuming there are no penalties for overpaying and the interest rates are the same then it really does not matter. Given this, I would target the smaller sum just so I could see the first milestone of finishing this first.

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getmore4less

Since you have an offset just build up the funds in one of the offset accounts, this way you still have access to the money if needed.

Thats one of the benifits of an offset.

MrsVanderkamp

Thank you for your help, you have got me thinking now. Do you mean that if I just save the money in the offset account rather than over paying on the mortgage this will have the same advantage? I suppose, thinking about it, if I ever got savings equal to my mortgage, the mortgage would effectively be interest free, and if say I made an OP of £100 or saved it in offset, either way, the mortgage interest would be calculated on £100 less?

I can see that this makes sense, but in terms of paying the mortgage off early, I'm presuming overpaying would be the quicker way?

Sorry if i'm sounding a bit confused now!

lizziebell*80

I also have an offset mortage and was wondering about overpayments the same as MrsVanderkamp. I am currently saving into the account linked to my mortgage as you are supposed to do, but wondered if paying a bit more off as well as saving there would reduce the mortgage overall while still having some cash avaialble if required? Or whether it would be best to continue putting everything into the offset savings?

MrsVanderkamp

I'm relieved to see that I'm not the only one unsure on this point lizziebell!

VfM4meplse

Keep on adding to the offset account, this works particularly well if you are a higher rate taxpayer as you don't want the inland revenue to grab 40% of the goodies! Feel that area under the curve shrink as your mortgage sheds those unwanted pounds...

MrsVanderkamp

Another dilemma! Whilst talking with my mother about our quest for mortgage freedom and offsetting, she has approx £65k in an account that pays monthly interest of about £200 that she withdraws every month. She has made the suggestion that we use this money to offset against our mortgage and we then pay her the interest amount of £200 as opposed to overpaying on the mortgage (confused yet!?)

I quickly had a look at a couple of online mortgage calculators and reckon this would mean that we could possibly pay our mortgage off in abut 8 to 10 years and save £40-£45k in interest. Reckoning on paying my mom £200 pm for the next possibly 8 years would cost us about £20k, this still would save us time and money. With her £65k and our own savings we woul practically have the whole of the £79k mortgage offset.

Obviously if interest rates changed a lot we would have to rethink but on the face of it it would seem a good idea. However, I feel like I may be missing something, could anyone see any pitfalls to this idea, do you think it is a good or bad idea??

Any advice would be greatly appreciated.

stevie_wonder

Best check with your lender to see how it would work - who is it by the way?
If your mum is getting only £200 on £65k she's only getting about 3.7% interest (assuming no tax deductions) so she should look at changing it to something better, I'm sure she could get at least 5% or 6%.
I thought that the interest you would have got on your savings went towards the mortgage, so if thats right then having the £65k doesnt make any difference as you are still paying your mum the interest? I'm not sure about this though - anyone else that can help?

MrsVanderkamp

Thanks for your thoughts Stevie.

Our lender is Cheltenham & Gloucester and the mortgage is totally offset, therefore we don't get any interest on our savings as such as it saves interest on the mortgage.

My mom's account is an ING one, she does pay tax, she knows she could probably get a better rate of interest but she likes the flexibility of the ING account, i.e., being able to draw the interest monthy.

Any one else any thoughts on this?

StuartGMC

MrsVanderkamp wrote: »

Thanks for your thoughts Stevie.

Our lender is Cheltenham & Gloucester and the mortgage is totally offset, therefore we don't get any interest on our savings as such as it saves interest on the mortgage.

If you are already 100% offset without the £65k then I don't understand how this would benefit you?

Have I misread this point?