First Direct Offsetting Overdraft

atlantis187

Does the ovedraft facility on our 1st Account be classed at credit on our account inorder to offset this with our mortgage say for examply if I had a £1k overdraft set up and my wife had 1K set up does this class as offsetting £2 against the mortgage even though its not our money?

Thanks

maninthestreet

Being overdrawn means you are debt, not in credit.

InMyDreams

maninthestreet wrote: »

Being overdrawn means you are debt, not in credit.

I think the OP meant that if he didn't use the facility, ie was not in dept (in his current account at least), would this *unused* facility count as an additional credit for calculating the interest.

I can't believe that it would because the interest is surely calculated on your actual balances.

I know that I have a £500 limit and that I can go up to £250 before being charged any interest. But it's 15.9% EAR on the whole overdraft once I go over £250.

The question is, if you actually *did* use up to your *free* overdraft limit (which won't be £1000), would it really be free anyway, or would that negative balance be negatively offset against your mortgage (and other offset savings) meaning that in practice you do actually pay interest on it at the rate of your mortgage. I strongly suspect it would be negatively offset, but I don't know for sure, meaning that even the 'free' part of your overdraft isn't truly free. Even if that's not the case and it really is free, is it worth the risk of slipping into the 15.9% interest rate on the whole lot?

I really don't think this is a goer, even if you could fiddle the figures in your favour which I'm sure you couldn't. Happy to be proved wrong though.

Locoblade

No, you can only offset with money you actually put into the account.

An overdraft is only a facility, its not money until its withdrawn. When it is withdrawn it will SUBTRACT from your offsetting, not add to it.

Look at it as one big account, the balance of that is what you get charged interest on. If you could withdraw the money from the "overdraft" and put it into the offset, you're effectively just taking out £1k then putting it straight back in again, so the net effect is you gain nothing.

atlantis187

Locoblade,
I've send my application off to FirstDirect on Friday and i've gone for the .79% Tracker. I rang them this morning and they have told me they've received the application form and are processing it (how long did your's take?).

What am worried about is while they're doing this if the rates change will mine also change to the new rate because i've not paid a booking fee for this?

Locoblade

I think once they've received the application, the rate is "booked" if they accept your application, it just means if the rate rises in the near future they'll stop new applications booking the old rate.

Mine's taken about 5 weeks so far but partly because I transferred from the old +0.99% onto the 0.49% with fee, so they had to re-send documents to me, which took another 4 working days or so, and also because Ive not been rushing it along the second I got documents to send back etc.

Ive now just sent back the legal mortgage document and the mortgage acceptance letter so there shouldnt be much else to do, although we wont be completing until the 1st of next month anyway, as thats when our existing fix runs out.

atlantis187

How long did they take to do the Valuation after you sent the form off and did the valuation come back to similar amount you had put down as the value off ur house?

How comes you've gone with the 0.49% rate I thought u were gonna for the other one?

Anyhow am hoping to stay on this for a few months then hopefully jump onto a better 5 year fixed deal.

My current deal with RBS finishes on the 30th of Nov do u reckon First Direct will have completed the switch over by then because my direct debits come out on the 1st of each month and if its not done by then RBS gonna charge me at SVR for Decembers payment.

Locoblade

The valuation took about 2 weeks from the time of the application being received by them, but as it was just the external one all we got was confirmation that it had been done and that the valuation was acceptable, so I don't know what the actual value was or if they even gave a figure, or whether the surveyor just agreed it was worth over 80% LTV.

I was originally planning on going with the +0.79% with no fees as I was thinking we'd hop onto a fixed rate early next year if and when they dropped a bit, but in recent weeks what with all the banking crisis blowing up again and fixed rates on the rise once more, I'm less confident in that happening in the near future so think we'll most likely be on the tracker a bit longer than originally thought. Even with the fee, if we overpay the same amount each month as if we were on the +0.79% (about £25 a month extra), we'll have effectively cleared the fee within 2 years and will then be on a lower rate going forward from there.

Its a calculated risk as fixed rates may drop again by next year in which case we'd lose a bit transferring out when compared to the no fee option, but on the other foot if house prices drop further and we're not in a position to remortgage competitively in the next few years anyway, Id rather be sitting on the best rate possible.

adr0ck

quick question on the first direct mortgage referred to

is it based on bank of england base rate or first direct base rate?

i.e. if BOE drop interest rates is it guaranteed that first direct will also drop rates

thanks

atlantis187

Do you think I would be better on the lower Tracker deal aswell then because on the 0.79 rate we will be paying a total off £940 a month repayment but we gonna overpay aother £60 a month making total repayment to £1000 a month.

How long will it take me to clear the fee on the 0.49% lower deal if I did the above.

Locoblade

Basically its only the difference between the two fees that affects when you'll be better off with the lower rate. The smaller the difference, the longer it will take to recoup.

Easiest way to work it out is to download my spreadsheet, put both mortgages into it (including the fee on the lower rate one), and then manually set the payment to £1000 on both. Then have a look in the monthly table for each and see when the lower rate has less capital left than the higher rate one. That month is your break even point on the lower rate