Offset mortgages

mramra

Hi all,

My current fixed rate mortgage tie-in finishes at the end of the month. Was looking at best 5 yr fixes available, but today I thought I'd look into offset mortgages. They don't seem to get mentioned much on here and sound too good to be true. The main drawback I can see is that rates seem to be variable so will probably be rising in future years.

I'd be grateful for any opinions regarding offset mortgages and whether anyone thinks they would be suitable for my situation:

Home value: £400k
Mortgage: £215k
Savings: £12k (in ISAs so I would need to cash in the ISAs)
Household income per month: £4k

:T

getmore4less

You can offset ISAs with some lenders, Barclays is one of them.

If you want to fix then offsets may not be the thing for you.

With this size of net borrowing rate will be important on overall cost.


With a current payment in the £1k region how much could you afford if rates go up?

mramra

Excuse my ignorance on offsets, as I said I have just started researching them. Is there a monthly payment as there would be with a normal mortgage? I assumed that as your current account is linked to your mortgage, simply paying your monthly salries into the account reduces the mortgage balance each month?

If so, then increases in interest rates would just mean that I was paying off less of the mortgage balance each month due to the balance growing by the extra interest - still bad news but not so bad as being committed to a variable rate mortgage?

Or am I completely wrong?!

At the mo I couldn't afford repayments to increase significantly if I was on a normal mortgage, hence why my first inclination was to look at fixed rates.

getmore4less

some just add the interest monthly so as long as you net income after spends covers this you are fine but still need to consider paying off the debt at the end of the term.

Some are on a repayment schedule reducing the total max debt you can have over time so you need bigger net amounts after spends but will have the debt paid by the end of the term.

You have to have control over your spends, with multiple accounts you can do this relativly easily and manage it like a normal mortgage

With Barclays you have what looks like a regular mortgage with payments and monthly statements. the offset funds just reduce the interest charged, you get to chose to use this saving to overpay or to reduce the monthly payment, overpayments can be got back if needed at the same rate as the mortgage.

supersunshine

Hiya if you are looking at a fixed rate but also want to offset then these companies do fixed offset mortgages:

Leeds Building Soc
Yorkshire BS
Coventry BS

I have been looking into these myself and they look quite good.

mramra

Thanks for the info. :beer:

I have read eleswhere that offsets are only suitable for those with relatively high savings. Is this so? My savings only represent about 5% of the mortgage balance.

Rafter

mramra wrote: »

Thanks for the info. :beer:

I have read eleswhere that offsets are only suitable for those with relatively high savings. Is this so? My savings only represent about 5% of the mortgage balance.

Historically there was a premium charged for the offset functionality, that meant that unless you had a lot to offset it wasn't worth it.

Generally now the offset rates are almost as good as the best buy fixed rates. Particularly if you keep a high balance in your current account or are a higher rate tax payer, offset can often be a really efficient and easy way to keep your borrowing costs and tax bill as low as possible.

Have a look at first direct too.

R.