Offset Mortgage and Inheritance

razorkai

Hi all

I hope this hasn't been asked before, but I couldn't find the answer when I searched for it. I currently have a First Direct Offset mortgage fixed at 5.95% for three years. With this product you can overpay as much as you like, and also borrow back the capital you have already paid off. I can use my linked First Direct current or savings accounts to offset the amount owed and therefore the amount of interest I pay.

In the next month or so I am going to inherit some money and I am going to use part of it to reduce the balance of the mortgage. Now there seems to be two ways of doing this from what I can understand. The first is to transfer the money directly into the mortgage account and reduce the balance that way. As I understand it I can withdraw the money again if I should ever need it, although hopefully this will never happen. The second method is to transfer the money into my linked savings account and use the offset feature to reduce the balance.

I believe that both these methods should result in the same savings, but hopefully someone can confirm this for me? Is there any advantage to doing one over the other?

Thanks

dimbo61

Yes they should be exactly the same
Ie pay say £25k off your mortgage
or pay say £25k into your offset account
they will both save you the same amount of interest.
You can then either contine with your existing mortgage payment ( ask FD to keep the mortgage payment static and therefore clear the mortgage quicker and pay less interest ) or pay less each month.
The thing with having a large amount of money in the offset is WILL YOU SPEND IT !!!
Dont have over £50k in the savings pot !!
If the inheritance is over £50k you could pay some off the mortgage and put the rest in the offset account .

razorkai

dimbo61 wrote: »

Yes they should be exactly the same

Thanks for confirming that, good to know I got this right! :T

dimbo61 wrote: »

The thing with having a large amount of money in the offset is WILL YOU SPEND IT !!!
Dont have over £50k in the savings pot !!
If the inheritance is over £50k you could pay some off the mortgage and put the rest in the offset account .

It will be over £50k although whether we use the whole amount to pay off the mortgage is another thing. It is mighty tempting to buy some of the things we have never been able to afford before. I have pledged that at least £50k will be used on the mortgage though - just have to make sure I do it when the money arrives! I am curious why you say not to have over £50k in savings? I can't see what difference it makes because I can withdraw funds from the mortgage account in the same way I can from the savings account.

dimbo61

The government guarentees the first £50k in a bank !!!
If you pay some off the mortgage and put £50k in the savings account its all safe ( we hope !)
Having cash to buy some NICE things ( new car, TV etc ) hopefully means good discounts and no finance !
While deciding what to buy keep the money in the offset account.

dimbo61

You dont have to ask your lender for your money from the offset account but you do from the mortgage account which may take a few days to be tranfered to your account.

razorkai

dimbo61 wrote: »

The government guarentees the first £50k in a bank !!!
If you pay some off the mortgage and put £50k in the savings account its all safe ( we hope !)
Having cash to buy some NICE things ( new car, TV etc ) hopefully means good discounts and no finance !
While deciding what to buy keep the money in the offset account.

Of course, I never even thought of that - thanks for pointing that out!!!

dimbo61 wrote: »

You dont have to ask your lender for your money from the offset account but you do from the mortgage account which may take a few days to be tranfered to your account.

I'm not entirely sure this is true with the FD account. My Internet Banking session makes it look as though I can just pay bills etc using my mortgage account in exactly the same way as I do with my current account. Do you know this for sure with FD or if not can someone that does confirm this?

Eyesparky

dimbo61 wrote: »

The government guarentees the first £50k in a bank !!!
If you pay some off the mortgage and put £50k in the savings account its all safe ( we hope !)
Having cash to buy some NICE things ( new car, TV etc ) hopefully means good discounts and no finance !
While deciding what to buy keep the money in the offset account.

In an offset situation, should the bank collapse, the net debt is used for guarantee scheme i.e. if you have a £100K mortgage with £80K offset in a savings account the net balance will be £20K owing and no need for Government guarantee. You would lose access to the funds but would not lose your savings at all. In effect you are more protected using savings to offset your mortgage than if you held the money in a totally different savings scheme where the limit of guarantee would indeed be £50K.

For ease of access I would probably have the money in an offset savings account and continue to pay the mortgage at the current rate and knock it down quicker.

dimbo61

Should a bank collapse the s--t will hit the fan BIG STYLE !
I am not with FD so dont know , but if the savings account is linked to the mortgage it will have the same effect.
Eyesparky is quite right about keeping the mortgage payment the same and clearing the mortgage early.
I would pay a lump sum off the mortgage and put the rest in the offset ( up to £50k ) and treat yourself + family GOOD LUCK

Eyesparky

I think First Direct, part of HSBC, are pretty well placed so would not be too stressed about it . Could well be a good idea to part pay off the mortgage and part save, particularly if you might be tempted to dip into it more if it was all in a savings pot. In this instance though the £50K figure is irrelevant as long as your net position with the bank is negative.