OFFSET to good to be true?

Nice_guy

Hi Guys and Gals!

:beer:

Our Natwest 5.59% 2 year fixed deal has finally come to an end. This is our first mortgage and we have 23 years left to run

Ideally we would like to pay off our mortgage ASAP, so with this in mind I’ve been looking at moving to an offset deal.

We have approx £110,000 outstanding on our mortgage and our property is worth a 'realistic' £180,000. Our joint income into our household is approx £5k per month, and I have saved £40k to put towards paying a chunk from our outstanding mortgage.

So I entered the following details into the one account mortgage calculator:-

Value of home: £180,000
How much do you want to borrow: £110,000
Repayment method: Capital and interest
Total income paid into account each month: £5,000
How much left in account after all outgoings: £2,000
How much could you increase your repayments by each year: 0%
Savings to pay into the one account: £40,000
Lump sum payments: £0

The result?
Our mortgage will be paid off in 2 years & 5 months!
The total interest paid over this time period? £2977 - £102.65 a month.
Saving 20 years and 7 months and £51k+ in interest.

The other advantage I see is that by using an offset mortgage I will effectively have a overdraft facility of £110,000. So should the money be needed for a rainy day or future investments it seems fairly easy to access.

The possibility of being mortgage free in 2 years and 5 months is fantastic, it does seem to good to be true. So now I’m thinking I have overlooked something, or haven't realised some of the negatives that could be involved in offsetting.

Could I please ask for some advice however basic or in detail, just to make sure I haven't overlooked something obvious!

Thanks in advance!

Nice_guy

P.S - If there are any one account customers out there PM me, I think if you recommend me to the one account they will pay me and you £125.

jackomdj

I think in your how much left in the account after all your outgoings of £2k may be your error (?) are you saving £2k per month? If so this would be correct.... basically
£110k mortgage
£40k savings
£58k savings over 2 years
£12k left paid via monthly mortgage, mostly paid capital as you will be paying minimum interest.
If not try it again putting in whatever you will be truely saving at the end of each month.
We have an offset account & I think it is fabulous. Some pointers are to keep your money in the bank for as long as possible - we pay everything via credit card (where possible) & pay off at the end of the month (originally took a 9m interest free card & when we spent on it we transfered it over to the savings account - unlike one we have seperate accounts all linked into the offset).

Good luck
HTH
Nicky

Nice_guy

Hi Nicky,

Thanks for the reply,

I’m pretty sure we should be comfortable in saving 2k a month. In all honestly I we do save more than this but I entered 2k a month to be on the safe side.

In your calculations you have 58k savings in two years, should this be 48k? Please forgive if I am wrong – just having a blonde moment.

I did read somewhere to keep the cash in the account for as long as possible to make it work as hard as possible. Top tip with the credit card suggestion - Thanks

I have visited the one account for an offset quote, but who are the other 'decent' providers I should be considering? The one account interest rate is 3.75% variable and the fees are only £145.

I don't think the one account have separate accounts that are linked to the offset like you have - although I could be wrong. Which provider is your offset with? Any reason why you didn’t go with the one account?

Nice_guy

Nice_guy

theartfullodger wrote: »

You could always enjoy yourselves & spend some more money. When God invented money he meant us to use it, not save it..

Lodger

We do spend money, I do believe in enjoying life. Like I said in my original post we save 2k meaning we spend 3k a month, there is more than enough allocated to 'spending' within that amount.

Being mortgage free in 2 years and 5 month will mean that there will be even more money to spend it's all about the bigger picture.

But thanks for post - FYI god did not invent money!

jackomdj

The £58k is your 2 yrs 5 months!

Our offset is with Lloyds TSB. Well the mortgage is with C&G but our accounts are with Lloyds - as we already had our accounts with Lloyds. It track's at 0.5% above BOE base rate for the life of the mortgage (don't know if they still do that). You can also link in other peoples accounts - we have my parents savings account linked in (don't worry they don't lose out!). It works well having seperate accounts for us. We have a joint expenses account (where all my spending money comes from), then OH has his account (he works away a lot & he knows what he has spent on stuff) & we have a couple of savings accounts. I keep a spreadsheet with all our info in & it calc's everything monthly - I reconcile it when we get our quarterly mortgage statement & it is usually within spitting distance. On the spreadsheet it has little pots of income - money which is the childrens, money allocated to the tax man, child benefit (goes directly to savings)....

Similar to you we are fortunate enough to be able to save every month as well as have enough disposable income to enjoy holidays etc. We will have a net NIL mortgage within about 18 months, however we are looking to move either this year or next - so it will be going sky high again!!!

I was going to say - when it gets to net nil is when the fun starts, moving money around so you don't pay mortgage interest but get interest on anything over & above!

HTH
Nicky

Kavanne

theartfullodger wrote: »

You could always enjoy yourselves & spend some more money. When God invented money he meant us to use it, not save it..

Lodger

Oh yeah great advice on money SAVING expert.com!!

Honestly I think I would struggle to spend 5k a month!

Nice_guy

Hi Nicky,

I see where the 58k has come from now! This is exactly why i'm asking for advice!

Sounds like you have the perfect offset mortgage. I would love to have an offset mortgage that will allow us to operate different accounts but are allowable to be offset against the mortgage account.

I doubt I will find anything close to the 0.5% tracker you have considering where the BoE base rate currently is - sounds like a fab deal you have there. Having looked at the first direct offset options their tracker is 2.39% above base but they also have a 2.99 fixed rate offset deal.

I'll do some more hunting around tomorrow to see what I can find, I'm having a bit of trouble finding a list of providers that do offset mortgages in the first place.

You sound very organised Nicky, something I need to do myself! we are thinking of starting a family soon so would love to be mortgage free before were 30. Having security for my family is my main priority and come rain or shine it's nice to know nobody can take our home away from us!

Moving house will start the whole process again! I would like to pay our mortgage off save over a decent time period i.e 5+ years then maybe consider moving. At least this way we could still upgrade while staying mortgage free, or only take a small mortgage on the new house. However in saying that if we are still as happy as we are now I don't think we will ever move!

Nicky could you explain what you meant by this:-

"I was going to say - when it gets to net nil is when the fun starts, moving money around so you don't pay mortgage interest but get interest on anything over & above!"

Thanks,
Nice_guy

Nice_guy

Kavanne wrote: »

Oh yeah great advice on money SAVING expert.com!!

Honestly I think I would struggle to spend 5k a month!

Think he/she got confused with moneyspendingexpert.com

jackomdj

Nice_guy wrote: »

Nicky could you explain what you meant by this:-

"I was going to say - when it gets to net nil is when the fun starts, moving money around so you don't pay mortgage interest but get interest on anything over & above!"

Thanks,
Nice_guy

Sure:
based on your £110k in 2 1/2 years you will have savings of £98k & your mortgage will still be £98k. You could just go ahead & pay off your mortgage. This would leave you with no savings as a safety net, say you lost your job or something so you would not be able to re-maortgage to get the funds back. So what you may want to do (& everyone is different but this is what we will do) is keep your savings & mortgage, but you will be 100% offsetting so not paying any interest out.
You will still be making mortgage payments (say £500 per month) & your savings (£2k) - so month 1 you will have to tfr this into a savings pot away from your offset account(s) so it actually gets you interest. To make the most out of your money you should tfr out the correct amount into a good savings account...

We love our house (a bit like you said) but 2 children & all their stuff later & we have outgrown it. Also OH has a bit of a bike fettish & we need a bigger garage! We are hoping that we can get everything we want in our next house (& boy is it a big list!) so selfishly the lower the house prices fall the better (ie if they fall by another 10% ours would drop by say £18k & the type we are loking at would drop by £35k - so we would be £17k better off)

Enough waffle.
Good luck with your search.
Nicky

dcds47

Hi, not an expert but I have this type of mortgage with Barclays/Woolwich.

Hope it helps with your search.

opinions4u

Kavanne wrote: »

Honestly I think I would struggle to spend 5k a month!

I thought you were a girl?

Shoe shops!

:rotfl: