Making Money on my Mortgage

triplea35

I applied for Birmingham Midshires Fixed Rate savings 1 year at 6.85%.

I did not have the funds available so transferred £50000 from my offset mortgage account to temporarily cover the deposit. It is taking some time for BM to take the money but at least it does not accrue any debit interest as the withdrawal from the mortgage account is offest by the current account balance.
I have since received notification that my mortgage rate has dropped to 4%. I understand interest is calculated daily.

My calculation is even at net rate 6.85% x .8 = 5.48% I will profit 1.48% of £50000 = £740. if leave it as it is for the year. If that is the case I may as well keep the mortgage balance outstanding and further invest the funds I am expecting to cover it.
The only fly on the ointment that I can forsee is that if not this year then certainly the next financial year I may move into the higher tax bracket which would just about wipe away any profit.

Have I missed something in these calculations?

Seems odd that for years I stoozed credit cards to offset my mortgage balance and now I am using the mortgage for similar things. Crazy times!

YorkshireBoy

triplea35 wrote: »

Have I missed something in these calculations?

An increased monthly mortgage payment (if they re-assess it now, rather than at year end)?

triplea35

Thanks Yorkshire Boy. I hadn't really considered that. As it stands though my mortgage is linked to base rate hence why it has just dropped to 4% from 5.5% and rates are projected to fall even further so there could possibly even greater upside during the year.
I suppose for safety i should keep the funds I am expecting in instant access/short notice account in case the rates do a sudden reverse.

YorkshireBoy

triplea35 wrote: »

...rates are projected to fall even further so there could possibly even greater upside during the year.

You may find (in your mortgage T&C's) that there's a minimum to which your mortgage rate will fall...a sort of negative cap! Also, if BOE base rate ceases to exist (ie there's a complete re-think on it's use) then you may also find your mortgage is linked to LIBOR instead.

I suppose for safety i should keep the funds I am expecting in instant access/short notice account in case the rates do a sudden reverse.

But can you get/sustain, say, >5% gross* (4% net) in an instant access account? If you can, let me know.


* You'll actually need more than this to cover the increase in your monthly mortgage payments...because you'll be paying these from income you'd otherwise save...if that makes sense?

triplea35

Well the interest rate on my mortgage has now dropped to 2.49%.

We have other savings : halifax Guaranteed Saver Reward 6.25% net ( wife non tax payer) until late June 2009 with one withdrawal allowed, and for longer term have applied for Cheshire B/Soc 2 year fixed rate at 4.75% ( wife - net)

The offset mortage interest charge is approx £105 per month but this is currently offset by the Cheshire application cheque that had still not been cashed despite being with them since before New Year though I understand they may well backdate the interest to the application received date.