Offset mortgage advice needed

198586

I hope someone can help me.

I have an offest tracker mortgage with the Woolwich (0.75% above the base rate) for about £130,000. Offset against this I've got about £35k. I'm wondering if at this particular time with the economy the way it is, would I be better using some of my savings to pay off part of my mortgage. I just can't work out if it makes any significant difference between keeping savings or using them to partly pay off the mortgage now. Interest rates aren't going to stay at this level for long I wouldn't have thought.

Any advice would be much appreciated.

silvercar

No difference whether you pay it off or keep it in the offset, other than you won't have access to the funds if you repay.

feisty1

silvercar wrote: »

No difference whether you pay it off or keep it in the offset, other than you won't have access to the funds if you repay.

The above is not quite correct, if u apply yr 35k to yr offset it is still yrs to take back.

dimbo61

Do you have any other debts ,loans or credit cards which you are paying a higher rate than 2.75% ?
If yes then use some of the money in offset to clear these debts and pay extra into offset to build up funds again.
As your mortgage is now only 2.75% you must be saving a lot of money compared to old rate you were paying so pay difference into offset each month. SIMPLE

Kavanne

At THIS time, I've moved all my offset savings into a 12 month fixed rate at 6%. My mortgage is at 2.25% so I will be making a profit (however I can access the money without loss of interest if the BoE base rate rockets)

opinions4u

Kavanne wrote: »

At THIS time, I've moved all my offset savings into a 12 month fixed rate at 6%. My mortgage is at 2.25% so I will be making a profit (however I can access the money without loss of interest if the BoE base rate rockets)

If it's a concessionary mortgage from your employer, make sure you factor in the Benefits in Kind tax that those nice chaps from the Inland Revenue apply. If not, disregard the stuff written below!

They assume you should be paying 6.25% and have not made any cuts in the rate since the recent cuts commenced from the BofE.

So any 20% taxpayer will be picking up a bill of 0.8% (6.25-2.25 x 20%) via their tax code at some point in the future.

In other words, your 6% savings interest is 4.8% net, and you 2.25% mortgage is really 3.05%. So your thinking is logical and right, but the 'profit margin' is a little bit narrow.

Another example of HM Government having pressured the banks to pass on the full cuts, but making significantly less progress at bringing their own house in to order.

Kavanne

Any profit is better than no profit, right? I did make some calculations before I moved my savings. I just worked out, after tax, I will make £380 (if mortgage rate stays at least below 3%). That'll shave at LEAST a month off my mortgage term, a bit more at current rates.

What's a concessionary mortgage?

opinions4u

Kavanne wrote: »

Any profit is better than no profit, right?

Too right!

I did make some calculations before I moved my savings. I just worked out, after tax, I will make £380 (if mortgage rate stays at least below 3%). That'll shave at LEAST a month off my mortgage term, a bit more at current rates.

Great stuff

What's a concessionary mortgage?

A mortgage provided by an employer at a rate not available to members of the public. Typically a bank allowing staff to borrow preferentially.

If you have a public deal, there's no tax liability. If all or part of your mortgage is subsidised by your employed the HM Taxman takes a slice of your good fortune.

Kavanne

Aaah, yes, I just got a normal mortgage through a broker (which was better than the deals available to me as bank staff hahaha)

WillowCat

feisty1 wrote: »

The above is not quite correct, if u apply yr 35k to yr offset it is still yrs to take back.

That depends.

I have an intelligent finance offset, and in the T&C it says you can have it back any time.

I paid off a big chunk (75k) on a bit of a whim once, six months later when I realised I did need the money after all I phoned to get it back.

"I see you're not a permanent employee now" (I had changed employers and was now on a contract). "Sorry, you'll have to prove your income again, and we don't accept contractors until they've been doing it for x months". I tried to argue that it was my savings I wanted back, not new money but didn't get very far.

In the end, fortunately and bizarrely , they accepted my p60 from the previous tax year. The irony is I never used the money but I'm keeping it offset just in case they try the same trick again.

chambta

opinions4u wrote: »

Too right!

Great stuff

A mortgage provided by an employer at a rate not available to members of the public. Typically a bank allowing staff to borrow preferentially.

If you have a public deal, there's no tax liability. If all or part of your mortgage is subsidised by your employed the HM Taxman takes a slice of your good fortune.

And ridiculous it is too. IR rules are unfair on bank staff. Below 6% is automatically preferential. I'm now being taxed on my 5.39% fixed rate as a benefit in kind.