Offset Mortgage

keith_45

I currently have an offset mortgage with First Direct at 0.79% above base rate and an ISA with £3600 (3.5%) and E-Savings account also with £3600 (1.5%) with Natwest.

I'm not really clued up about the offset part of my mortgage and can't grasp how to use this account effectively.

I'd be grateful of any advice as to how to use this accounts to work together in my advantage. If they are linked to my mortgage, what exactly happens to help me? At the moment they are entirely independant of one another

Mortgage is for 95k if that makes any difference. So the interest is approximately £110/month at the mo. the Natwest accounts have only just been opened and the mortgage itself is only 2 months old.

Also, the offset mortgage has a savings account with it too. What would be the advantage / disadvantage of saving say 100 per month in that account as opposed to just over paying my mortgage by 100 quid each month?

Thanks

willmatt

You're currently paying 1.29% on your mortgage (0.5+0.79).

Every penny in any of the Firstdirect offset accounts will earn zero interest but instead will save you interest on your mortgage. Currently this is the equivalent of earning 1.29% on your savings in a traditional account, except that you do not pay any tax on this so in order to earn the equivalent in interest, you'd have to find a savings account which paid 1.29% after tax.

Your ISA pays 3.5% and is untaxed. It is currently more profitable to leave the money in the ISA than to offset it.

Your E-Savings pays 1.5% and is taxed at either 20% (if you are a basic rate tax payer) or 40% (if you pay higher rate tax) leaving you with 1.20% or 0.9% respectively. This account is currently not better than offsetting the money in Firstdirect and you should consider moving the money to Firstdirect, especially if you pay higher rate tax.

In the new tax year if you can put the £3600 currently in your e-savings into the 3.5% ISA, you should probably do so.


To find savings accounts paying interest which is better than offsetting you do the follwing calculation on whatever the current mortgage pay rate is.

Basic Rate Taxpayer
(MORTGAGE PAY RATE / 8) * 10
Current example (1.29/8)*10 = 1.6125%
Accounts advertising gross interest above 1.6125% will leave you better off.

High Rate Taxpayer
(MORTGAGE PAY RATE / 6) * 10
Current example (1.29/6)*10 = 2.15%
Accounts advertising gross interest above 2.15% will leave you better off.


Paying £100 per month into the savings account (or just not spending it from your firstdirect current account) has the same effect as paying £100 off the mortgage and your monthly mortgage payments will decrease, accordingly. It has the advantage of being available for you to borrow back at any time by simply spending the money.

Hope some of this helps..

Robert_Sterling_3

I do not have a copy of your Terms & Conditions which should tell you what you want to know.

dimbo61

Hi Keith and Jeannie!
I have a uk offset mortgage running for the last 3 1/2 years ( its fixed for 5 years ) and my wife had an offset mortgage before that.
Keith it is better to save! the £100 a month into the offset account each month as it soon builds up to a nice little/big ! savings account for emergencies and it offsets your mortgage saving you the interest TAX free.
As you mortgage rate is only 1.29% I would put the £3600 you have in the Natwest into a Barclays isa in april paying 3.61% TAX free and earn more interest.
Offset mortgages are brilliant and a great way to save and pay off your mortgage early . GOOD LUCK to you both