Offset -The right thing to do?

deepseadiver

I have a 52K mortgage with 13 years to do which is currently on a variable rate ( since July 2005)
I have approx 12K liquid in a 5% easy access savings account.
I have approx 18K in ISAs which are the same value as when I invested them in 1999 which I intend to cash in.
My only other financial commitment is a £235 per month car lease.
I am quite lucky to have the above investments thanks to my father who has now passed away.
I am considering taking out an Offset 4.89% fixed for 5 years with FD and then overpaying approx £300 per month and by all the calculations should pay off in 6 years and still have the above invetsments.
Am I doing the right thing? ie Should I sell the shares? Should I pay some off the mortgage now with the cash? Should I take advantage of having the cash and maybe buy another house to rent out.
I cant seem to work out what is best to do to get the best from the money which has done nothing for me since 1999

Any suggestions please?

x_galla

Hi Deepseadiver,

I'm in a similar position to yourself, so many thanks for posting this. Do you have a spreadsheet that you used for your calculations? I'd love a copy as I'm not sure how to work out my figures.

Many thanks

Paul
paulgallagher14@hotmail.com

deepseadiver

Paul, If you go on the mortgages section of the FD website then you can play around with the figures and thats how I can get mine potentially paid off in 6 years.

deepseadiver

I thought I may have got more replies than this. Come on money savers!!

Daniel_B

Hi DSD,
as an FD customer I can't recommend them enough - good starting point.

So at the mo you are paying interest on 52K - can I ask what interest you pay a month - you don't mention what the rate is, but if it's 5.5%, then I estimate it to be around £240 a month.

I don't see where the shares come in - are they what are in your ISA's?

personally I do not think it is adviseable to clear a huge chunk of your mortgage, as you then have no cushion whatsoever if problems occurred - with the offset it is as *benefitial to have it in savings, readily available, as it is to pay it off the mortgage - IMHO.

*As long as you are strong willed and don't spend it!

So from what i can see, you could only be paying interest, if you used everything as an offset, on 22K, which if you go for the fixed 4.9% rate works out at around £90 for the first month, and in all likelihood in the first year you will pay less than £1000 interest all in.

I'll tell you what I do, because I want to bore you....!

I overpay the mortgage, AND save money into the offset accounts, for me that is a good balance - I find it very importnat to setmyself targets to clear the mortgage down to X amount by a certain time, and can adjust the balance between savings and overpayments to accomadate this - it's as flexible as you want it to be.

As an example, this year myself are paying £870 a month into the mortgage, next year, hopefully we are planning to pay £1000 a month in, as by then, again hopefully, we will have as much savings as mortgage, and can clear £12000 per year - seeing the balance come down by the amount we put in each month will be a huge motivator.

I intend to carry on paying the mortgage off, even though we have the capital to clear it, my thinking being is that I can save at the same time, and come the end of the mortgage (5 or 6 years away) I will have a house, and a reasonable amount of savings as well - different strokes for different folks though

From what I read, the BTL market is not ideal at the moment, and this all depends on how risk averse you are - perhaps if you have shares already, then maybe not that averse.

Hope that hasn't muddied the waters too much, just thought a real life example might help.

Cheers

Dan

deepseadiver

Sorry to have confused matters in the original post. The shares I talk about are the ISA's. I am paying about 6% at the mo on the variable and my payments are about £490 per month on a repayment type. One thing I did think about was this - Say I had £52k to pay off the mortgage using all my savings and then a week after paying off I croked it, would my life assurance ( decreasing term/amount type) pay out? ie are they desighned to pay off your mortgage or to pay out a lump sum. If it did not then my family would be down £52k is that right? Other people must have looked into this? You do lose the opportunity cost of your savings if you wax it all paying off your mortgage. Maybe splitting any overpayment into savings and mortgage is not a bad idea.

Gambler

deepseadiver wrote:

Paul, If you go on the mortgages section of the FD website then you can play around with the figures and thats how I can get mine potentially paid off in 6 years.

I'm on the FD website but can't see a calculator, just numbers to call if you want to apply

canny_yorkshireman_2

intelligent finance have a good one on thier web site here is the link
https://www.if.com

SaverSarah_2

Hi Deepseadiver, I'm in a very similar position to you. Went down Martin's recommended route of phoning whole of market fee free mortgage advisor/broker/whatever, was told best in the market for offset at the mo was base+ .19 for 18 months then base +.75 for 18 months. Also with First Direct.

I bank with FD so am really keen to switch from our current deal with the Woolwich (who, incidentally, we've found fab, just want a better rate).

Can I ask where you heard of this five year offset rate? Sounds almost too good to be true! Thanks so much.

Barney088

The offset model is very good, it looks like you are going to pay £300 per month extra. If you do this without fail I'd ask why you want the offset mortgage?

I tend to use this method when sitting with people to see what options they have. One way or another find out how much money you are prepared to place towards your mortgage every month, if you give me a figure of £1000 then I'll pick the term for you from that.

I have a great couple of clients who came to me for a 22 year mortgage, because thats what they have left. We did a similar excersize and the money they were prepared to spend each month meant that they paid off their mortgage within 13 years. This solution fitted them but may be a place to start thinking about you. It worked because they wanted to pay X per month, every month. If you need the rainy day fund etc then this may not be for you. A good broker will produce these quotes for you.

As for the rate for 5 years, it's quite good, there are cheaper ones but not the off set option, again, if you are religiously paying off your mortgage monthly then cheaper rates will let your money go further. again, see a professional broker for full quotes.

More questions than answers, sorry, but good luck

deepseadiver

The offset 4.89% 5 year deal was found by London and Country mortgage brokers
I wanted to offset so that it would give me some sort of flexibility with my mortgage payments/overpayments. Although I am very disciplined I would not like to think that I was tied to paying a £750 per month mortgage. With the offset I will be paying a 450 per month mortgage and over paying 300. Same amount but with the option of not overpaying one month if need be.

I have another question not yet answered -
If I use liquid funds to pay off part of my mortgage, then would my life insurance ( mortgage linked) pay out a lump sum or just pay off any outstanding balance? I know it sounds a bit depressing but you never know when your number is up!!
I cannot help but think that I should maybe overpay into the savings pot of the offset motgage. I know there are similar posts but does anyone have any suggestions?