A brain wave on saving money on my offset mortgage????

Donna410

Thanks Locoblade for your help it is very much appreciated. I don't have a strong financial background, or to be honest took much of an interest in money until recent years, well the savings part of it certainly!

I called up the AA for a settlement figure, which is much less than what I thought, £12625.82, so I think I will just definitely pay this off.

Now if you don't mind me asking your advice, (i'll try my best to work this out too). My other half and I will now be able to save £700 a month. In your opinion would be better to take out a seperate ISA each, at a total of £7200 a year? I used the Cash ISA calculator on this website and over two years at 6.25% it says we would have after two years £15348.08.

And then use the remainder of our saving i.e. £100 a month into the offset saving?

Or have 1 ISA and put £400 into offset saving.

Or put all £700 into the offset saving?

Thanks again for all your help:)

Locoblade

No probs

As per the rules before, if the rate of interest you earn in savings is higher than the rate of interest you pay on the mortgage, then overall the money is better off in savings than in the offset.

As the FD mortgage rate is quite low at 5.49%, you're going to earn more money by putting that spare cash into the ISA at 6.25% than you will save in interest by putting it into the FD offset. Obviously this comparison of interest rates only applies to ISAs because they're tax free. A normal savings account at 6.25% would actually pay under 5% after tax, so the money would then be better off in the offset pot.

You can use the cash ISA calculator to work out how much you'll save, simply put in £700 a month at a rate of 5.49%, the difference between that figure and £15348 figure you calculated for the 6.25% ISA is how much more you'll make on the ISA compared to putting it against the mortgage.

As you've mentioned though, your £700 a month will fill up your ISA allowance before the end of the year so you need to plan what to do with the remaining thousand pounds or so. If you can find another savings account that will pay over 5.49% AFTER tax, then you're best off saving that too, otherwise put it in the offset pot. You'd be slightly better off filling the ISA as quick as possible though in 10 months or so, then only pay into the offset after its full, rather than pay £600 a month for 12 months into the ISA and £100 a month into the mortgage.

Donna410

I downloaded your spreadsheet - it's fantastic, thank you for sharing it with us:T

I calculated using your spreadsheet the different scenerios for saving and like you have said the 2 ISA's will be the best for maximising money.

Now need to go sell the car! I'll also look into your advice on filling up the ISA's more quickly too, Can I put 3600 into each ISA from day 1 and then not add any more money, therefore maximising the interest?

Thank you once again for your time, advice and patience You're a STAR!:starmod: :staradmin :starmod: :staradmin :starmod: :staradmin

_dave__4

Donna410 wrote: »

Can you show me how you did the workings? i.e. how do you work out in Scenario 2 the figure 78,723.14

Another way of thinking about it is to go straight to Locoblade's final two figures of £62,739.14 and £63,220.83, as follows:-

Firstly, the balance remaining on the mortgage at the end of the four years, if no overpayments are made, would be £80,650.20.
[You can see the figure of £80,650 here: http://calc-calc-calc.net/get/calc/Mortgage-Comparison?L=88000&I1=5.49&Yrs1=4&Term1=25 ]

Subtract from this the accumulated amount from £333 per month for four years at 5.49% (£17,911.06) : £80,650.20 - £17,911.06 = £62,739.14.
[You can see the figure of £17,911.06 here: http://calc-calc-calc.net/get/calc/Saving-Fund?pay=333&int=5.63027&t=4, noting that a twelth of 5.49% each month is equivalent to 5.63027% per year (after compounding).]

In a similar manner, the figure of £63,220.83 is £80,650.20 - £17,429.37 (where £17,429.37 is what £14,000 accumulates to over four years at 5.49%).

Does that make sense?

Baz_2

Donna at the end of the day it's a choice of saving 5.49% if you pay it into your offset account and saving 6.85% if you pay it off the loan.

All the figures you come up with don't matter, that's always going to be the top and bottom of it.

The lady at the bank is basically trying to say that you will need a normal savings account that pays 7.7% before it's more beneficial for you to save it there instead of the offset mortgage. But that's only because you get taxed on a normal savings account. However if you could put it into an ISA that doesn't get taxed you would only need to beat the 5.49% for it to be beneficial to put it in an ISA rather than the offset account.

Because your example of paying off your car loan doesn't involve any tax deducted you cannot use the 7.7% figure as you basis for the comparison. Because the 7.7% is grossed up for tax and the 6.85% on the car loan is not. To compare like for like you would either have to gross the 6.85% up or net out the 7.7%, i.e compare the 5.49% with the 6.85%. In effect paying off the loan at 6.85% would be the same as saving it in a 6.85% ISA as neither involves tax.

Pay off as much as you can from the car loan.

To prove it ring the lady at the bank and ask what rate you would need to have on an ISA for it to be more beneficial for you to save in the ISA instead of the offset.

getmore4less

The idea was good just the source of the money was wrong.

There is cheaper money than the mortgage available if you look for it, when you find it offset it, also lok for better rates than the ofset and take up those.

Credit cards are still a good source of cheap money

www.stoozing.com

if not sure start with a 0% purchase card for all regular spends.

Ballance transfers need a bit off thinking about because of the fees.


If the ISA rate is more than the mortgage rate borrow back to fill the ISA each year.

There are also the regular savings acoounts that offer rates better than the mortgage you can drip feed these fom offset funds as well.

Locoblade

Donna410 wrote: »

I'll also look into your advice on filling up the ISA's more quickly too, Can I put 3600 into each ISA from day 1 and then not add any more money, therefore maximising the interest?

Thank you once again for your time, advice and patience You're a STAR!:starmod: :staradmin :starmod: :staradmin :starmod: :staradmin

No probs, glad you liked the spreadsheet

Yep you can put £3600 in the ISA from day 1 if you have it available (or £7200 if you and your other half have one each), as you say that will maximise the interest you earn, it just means you cant put anything else into an ISA until April the following year when you can open a new one for 2009/10.

tinkerbell84

Donna410 wrote: »

Thank you once again for your time, advice and patience You're a STAR!:starmod: :staradmin :starmod: :staradmin :starmod: :staradmin

Hint - there's a 'thanks' button at the bottom right of each post

bikerd

My wife and I have ISA's and a offset mortgage I woul like to know if it would be better to move the money from the ISA's to the mortgage (isa rate 4.75%) (mortgage rate 6.5%)

Locoblade

On the face of it, you'd be better off short term putting the money in the offset as its a better rate, but it really depends on things like how long you've got left on your mortgage and how much you've got in the ISAs. What you need to remember is once the money comes out of the ISA, it can't go back in again so you lose that tax free benefit on the cash. If you've say only got 5-10 years left on your mortgage, you have to weigh up the short term benefits with the longer term issue of where you'll put that money once the mortgage is paid off.

The simple answer would be to move the ISAs into accounts with better rates, Im not really up on ISAs etc but I saw the other day that NatWest were doing some good deals on ISA transfers in the 6.5%-7% area, so that might be worth investigating.