Fully offset mortgage.

billcoch

Brand new to this forum, and would appreciate an opinion on whether to repay, (in full or in part), my offset mortgage. This arrangement ends in Nov. '09, when we will both be aged 70. We are both standard rate taxpayers.
Four years ago we were in a position to pay off our mortgage but opted to effect an offset re-mortgage simply to retain access to a capital sum, if required, which we deposited in a fully owned subsiduary of the mortgage lender. Together with balances on our current accounts, the offset amount has been managed to always just exceed the mortgage balance, and we have paid extra each month to reduce the amount outstanding more quickly. This has been reduced from the initial 25k to 19k over 3.5 yrs.
I reasoned that we were in effect 'receiving' interest on the savings balance at the same rate that we were avoiding paying on the mortgage balance, and we have of course paid no interest on the mortgage, and neither could we have obtained a higher rate on the savings elsewhere, (until perhaps now).
In view of the present turmoil in the financial world, (and taking a pessimistic view of the safety of the savings), would it be advisable to stick with the current set-up, or repay the mortgage or most of it, to avoid any prospect of losing the savings or having to go through a laborious and long winded process of claiming under the FSA compensation scheme? The lending/savings are with Lloyds TSB/C&G.
We would lose the facility of 'borrowing' our own savings (at the mortgage rate) if required for any reason, but would save the monthly repayment we are making, and the savings element would once again be tied up in the property, which we have no intention of trying to sell in the foreseeable future.
Sorry if this is a bit longwinded but the opinion of others would be most interesting.
Cheers,
Billcoch.

Paul_Herring

Just a general question based on this situation, and not an answer - isn't the offset in this circumstance just a 'free'/'cheap' equivilant of equity release without all the hassle of having to pay a company some substantial percentage of the valuation to obtain it?

getmore4less

If you are 100% offset then you are not really making any payments so there is nothing to save, you are just shuffling money around, net position stays the same.

If you don't plan on extending the arrangemnt beyond next years date and have no need to borrow the saving back then why not just pay the thing off.

If you want to extend the arrangemnt then I would see if you can do this indevinately, it will depend on pension income etc if this makes any sense since you would need to fund interest payments if you did borrow the money.

Unless your net savings are over £35k you are protected anyway.

billcoch

Paul-herring. Equity release is different from my position in that I haven't given away any part of the property. The saving element is my own money.

Getmore4less. Your comments reflect my own feelings to be honest. Why not just get shut? My only reason for doing it in the first place was to enable me to have a source of capital in reserve if needed, without having to apply for a loan etc. and be subject to someone else's rules if doing so. I might as well pay it off and consider the no longer required monthly payment and the overpayment as an outgoing saved: in effect, extra income.
I suspect that if I wanted to extend the arrangement, the mortgagor would probably want me to borrow the full £25k again, to comply with legislation, which wouldn't be a problem of course, because the additional amount would just be added to the savings element to continue to provide full offset cover. I might just explore the possibility of extending before making a decision, and just hope that LloydsTSB/C&G doesn't go mammaries up in the meantime. :rolleyes:

Thanks for your interest.

Paul_Herring

billcoch wrote: »

Paul-herring. Equity release is different from my position in that I haven't given away any part of the property. The saving element is my own money.

My question was asked because your situation appears to 'simulate' the effect of equity release.

You have a property.

You have liquidity against that property. (you can draw money on it.)

How is this different from equity release? (apart from how it happens.) - my question. Sorry for hijacking it

Example:

(my) In-laws own a property outright. They want cash - equity release with associated charges, interest, fees... the list goes on. Or downsize (similar stuff)

You: Own property with a mortgage (offset so you don't pay interest) with ability to borrow against it without penalty.

One wants to 'have' (say) £5,000 to repair <whatever> immediately.


Who's better off? Is it the 'same' as equity release?


I suppose (given your original question..)

If you gave up the offset, would you be better or worse off if you needed to count on the equity in your home to get some money?

Currently you have the 'offset' to 'borrow' against. If you paid it off, you'd have to get a remortgage 'equity release' (with charges, etc.).

My (hijack) question is, is it worth, in that situation, to pay it off?

I'm not sure it is, but I'm hijacking your question.

Sorry.