offset mortgages - help 25 January 2009 at 4:05PM in Mortgage-free wannabe 12 replies 1.1K views

1eleonar

my hubby and I are thinking about moving our mortgage to an offset mortgage. at present we owe £26, 500 on our mortgage, but plan to borrow and extra £5,500 on it for home improvements.
Does anyone have an offset mortgage, anyone any experiences of one (good or bad), are they too good to be true, and would anyone recommend having one.
We have no debt, credit card bills, anything along those lines. The only money we owe is our mortgage. But we don't have any savings (well only £2000) to put into the offset account when/if we set it up.
Any advice/experiences etc would be greatly appreciated.

Turtle

Hi we have an offset mortgage with first direct, I think it's brilliant. You still keep all your money in separate accounts (unlike Virgin One account), but get the benefit of saving interest on your mortgage with the amounts in your linked accounts (ours is 2 x current ac and 2 x savings). You can also overpay as much as you want without penalty, or just pay interest if times are tough. You get a statement once a year but can view (and make payments to or from) on internet banking any time. Ours is guaranteed no more than 1% over base for life of loan but have had it for years, I think its no more than 1.89% over life of loan at moment. Not sure about set up fees and stuff but have a look at firstdirect.com. Service has always been great as well, plus they have £100 'gift' if you move to them using their switching service.

TallGirl

We have been with the Woolwich/Barclays for years .75 above base rate. We both have nice chuncky incomes (which we do spend) but at least they are offset during the month. Also is a cheap way to borrow for say car purchase as you don't have any set up fees etc and can pay it back at whatever rate you want.

I can see it all online and like OP said it is kept in separate accounts.

My DH is a high rate tax payer and it makes his tax return quite easy as there is no interest paid on any savings.

I wish ours had the facility to offset ISA's but it doesn't. Good luck with whatever you choose to do.

amazamum

I have an offset + love it.at 0.49% above bank of england base rate till dec this year.
We have 2 savings accounts linked + 2 current accounts linked,I hope that when I come to remortgage at the end of the year I can get 1 similar.
and we are both part time workers with not large amounts in our accounts,but every little bit helps.

Nice_guy

Hi 1eleonar,

I agree with what 'trying to be good' is saying. From the research I have done into offsets they are only worth it if you have a decent amount of savings. Don't forget offset mortgages are normally charged at a higher interest rate so if you have nothing/little to offset then it effectively works out as just having an expensive mortgage.

Here's a good link to fill you in a little more about offsets:
http://forums.moneysavingexpert.com/...ead.html?t=471

Hope that helps!
Nice_guy

Floxxie

TallGirl wrote: »

We have been with the Woolwich/Barclays for years .75 above base rate. We both have nice chuncky incomes (which we do spend) but at least they are offset during the month. Also is a cheap way to borrow for say car purchase as you don't have any set up fees etc and can pay it back at whatever rate you want.

I can see it all online and like OP said it is kept in separate accounts.

My DH is a high rate tax payer and it makes his tax return quite easy as there is no interest paid on any savings.

I wish ours had the facility to offset ISA's but it doesn't. Good luck with whatever you choose to do.

TG, I can offset Barclays ISAs. This is what I was doing before the rates dropped so much (our mortgage is .48 over base) so we now keep it outside the offset until rates rise again.

The downside with Barclays is that you don't get an up to date balance online and if you make overpayments they take 3-4 days to take effect and show on the balance. However this is minor compared to the benefits of having your savings/current account balance work for you, against the mortgage.

Floxxie

Gorgeous_George

My offset lifetime tracker is with Britannia.

As mentioned earlier, offsets are only worthwhile if you have, or intend to have, money to offset.

Mine is set up such that the interest that the savings would earn is paid off the mortgage - just like an overpayment. The lower the interest rate, the lower the overpaymet.

GG

jackomdj

We have an offset, we have savings so it works the best way it should.

We spend during the month on the credit card - so keeping it in our account (use the sky card so we get a % back against our sky bill) longer to offset longer. We pay this off in full at the end of the month. We did originally have the card when it was interest free & set the money into savings each time we spent on it.

Also last year we actually saved some outside the offest in an A&L account which had great interest. Also we had a free overdraft - which we just transfered over into savings!

I agree with people saying having savings is the best way to use an offset account. But use a calculator & see if you will benefit from going down this route.

HTH
Nicky

1eleonar

thanks all. Nicky, you sound just like us. We have the sky card, so we reduce our bill each month, and we pay the balance off in full each month. We also did the interest free thing, which was fab. Our friends think we're crackers, as none of our friends pay their bill off each month. But I hate having any debt and outstanding balances.

We just can't decide whether it's worth doing the offset thing or not. I think it works out cheaper for us borrowing the extra money, having the small savings we have, which we'll hopefully build up again.

Aaaaaarrrggghhhh, decisions, decisions.

dimbo61

Hi I see you only have a small amount of savings but you also have a small mortgage.
I also have an offset mortgage and have been very happy with my decisions to take one out.
If you apply for an offset mortgage and take out a large enough mortgage to repay your existing mortgage and pay for the home improvements you can then pay the extra into the offset savings account until you need to buy materials or pay builders.
The savings you have are more than likely earning very little in interest as rates have dropped so much over the last few months.
Many people on the site have found offset mortgages a great way to save ( into the offset accounts ) and repay there mortgage quicker than normal repayment types.
Getting a good rate either a tracker FD or a fixed rate deal of say 5 years is the best way to go.
These are only my opinions !!

StuartGMC

Works for us and at that capital, you need to have one which includes your Current a/c as it represents a sizable portion each month. If you are disciplined to pay off credit card every month, then use it for EVERYTHING then the money sits offsetting until you schedule the payment in full say 4 working days before due.

See my thread for comments etc on how it's helped us; but succinctly in June 2006 we moved to offset at £32.5k and took 10yrs term (saving 3yrs 4motnhs on original 25yrs). We hope to be 100% offset in the summer and possibly mortgage-free in October.

You will need to increase your savings but this can also be an incentive to do so.
Good luck