offset mortgage, loan or savings??

munkachunka

Hi to all,

I am having a dilema and would like some advice from whoever can offer it.
I have just opened a current account with A&L with 8.5% interest on balances up to £2.5K.
An Offset mortgage of £133,640 @5.29%(currently paying interest only due to it being let out)

I have a balance transfer up to £12500 available @0% for 15 months with 2.98% fee.
I have a loan of 10000@ 10.5% over 36 month, settlement figure is £9500, loan currently has 30 months remaining.

Finally I am at my question.
(option 1) pay back my loan, putting £2500 in A&L account with the remainder off setting my mortgage, I will also pay the required £633 into my offset mortgage every month to pay the loan off in 15 months. At the end of interest free period either repay the virgin card or get another interest free card.
(option 2) pay back loan, put all other moneys into offset account.
(option 3) put all money into offset account.
(option 4) any other suggested options.

As you can see I do not have the mathematical knowledge to workout the values of each option, I do not know when the break even point is between offsetting and interest gained in savings due to tax etc.

one other question, does it make any difference if I make over payments or simply have a positive balance on my offset account?

Any help would be greatly appreciated. thanks

Locoblade

The basic rule to minimise how much the loans etc cost you is to pay off things in order of their interest rate, highest first, and put any remaining money in the highest interest location.

To work out the latter and find out if the money is better off saved or against your mortgage, we'd need to know if you pay high rate (40%) tax or not. If you do, multiply the 8.5% by 0.6 to calculate the actual interest you earn (5.1%), if not then multiply by 0.8 (6.8%). This suggests that if you pay high rate tax, it would be better off on the mortgage, if you pay normal rate then its better off being saved.

To work out how profitable the credit cards might be is slightly trickier, but the calculators in the Stoozing forum should be able to help work those out.

munkachunka

Thanks Locoblade,

I am a higher rate tax payer, so I guess the right thing to do would be to put the remaining cash on the mortgage. I thought about putting it in my egg ISA but the rate has plummeted in the last few days.

cheers

Stu

benyboy

If you were to pay basic rate tax (22%) you would multiply the 8.5% by 0.78 is that correct? Just trying to get my head round the sums....

Joe_Bloggs

There is a table on the HMRC site that lists how interest is taxed here. The basic rate of tax on interest is 20% hence you multiply the gross rate by 100% - 20% = 80% to get the net rate.
J_B.

dimbo61

Let me try to answer your questions!
You have a mortgage of £133,640 plus a loan of £9500
You have just opened a CURRENT account with A&L and must pay your wages into this account every month ! Up to £2500 each month earns 8.5% but any money over this amount earns WHAT 0.5% ?
You also have the chance to borrow even more money on a Virgin Credit card WITH a 2.98% FEE and 15 months 0% period to repay the CC.
You would use this borrowed money to pay off the loan at 10% and save HOW MUCH ? £500 having paid £375 fee ( the 2.98% fee )
You then need to pay both a mortgage and put £633 into the offset every month.
You need to look at how much you spend each month on the debt free board