Offset - is it a good idea to overpay right now

patp

Just found out I was overpaying my offset, because of the timing of their annual calcualtion back in October before the heavy rate cuts. Apparently this level of overpayment would have led to paying it off in 15 years (rather than 22). This is a tracker, so my rate is currently 1.48%. the question is, does this temporary negligible interest rate make for an opportunity to buy years off the mortgage at a bargain price? Should I keep overpaying (I can afford it) or should I get the payments recalculated?

getmore4less

Unless you have somewhere better to put it, the only difference between overpaying or sticking it in the offset is liquidity, and on some offsets you can get the money back if you overpay anyway.

IF you don't overpay/offset what would you do with the money?

patp

Well right now I could withdraw all my savings, plus the mortgage reserve, and invest it all. It's incredibly cheap borrowing... but given the flakiness of just about everything and my feeling that much worse is to come, I'm happy enough with it all offset.

But my question is more about whether it's better to have it configured for payment reduction or term reduction, and whether one of those is more advantageous at a time of very low interest.

Anon

Term reduction is the best option, in my opinion, as you then have more capital paid off and less capital on which to pay interest when the interest rates rise again.

Anon

getmore4less

patp wrote: »

Well right now I could withdraw all my savings, plus the mortgage reserve, and invest it all. It's incredibly cheap borrowing... but given the flakiness of just about everything and my feeling that much worse is to come, I'm happy enough with it all offset.

But my question is more about whether it's better to have it configured for payment reduction or term reduction, and whether one of those is more advantageous at a time of very low interest.

With offsets it makes no difference to the cost which you do.

phil_51

Anon wrote: »

Term reduction is the best option, in my opinion, as you then have more capital paid off and less capital on which to pay interest when the interest rates rise again.

Anon

Hmm I read it was better to do it the other way around...

silvercar wrote: »

No real difference between overpaying and putting money in the offset, provided you tell them to reduce monthly payments by the offset pot rather than to keep the payments the same and use the effective overpayment as a capital reduction. You get the choice with the coventry.

opinions4u

So you are being charged 1.48% on your mortgage?

If you are a higher rate tax payer and can get more than 2.47% on an easy access savings account bang it in to savings and earn more than you are paying on your mortgage. That rate changes to 1.85% for basic rate tax payers.

If you can utilise any cash ISA at more than 1.48% you are up on the deal.

The key is to know at all times what rates you are paying on the mortgage and what rates you are earning (after deducting 20% or 40% tax) on the savings.

If the savings account net rate drops below the mortgage rate it is time to get out and make a capital repayment.

If you're pricing up savings accounts today, many won't show the impact of the last 0.5% interest rate reduction yet.

anselld

If capital can be drawn down and invested insead at a rate above 1.85% (if basic rate tax payer) and provided the 50,000 rules etc are followed then it makes sense to invest elsewhere. I am currently borrowing at 2.49% on my offset and Investing at 6.25% gross 5% net. Borrowing at 1.48% must present opportunities provided there is flexibility to draw down / repay capital at will as there is with most offsets.

PS beware of loss of interest during transit if transferring large sums to from other institutions

Anon

phil_51 wrote: »

Hmm I read it was better to do it the other way around...

Sorry, I didn't pick up the offset part of the query , yes in Offset terms it should make no difference (I was thinking about a traditional repayment mortgage).

Anon