Advice on Offset Mortgages please?

PuzzleGirl

We have a 5yr fixed rate interest only mortgage at 4.98% with Nationwide which is coming to an end in Sept 09. Having looked at the posts on this forum, it seems most people are agreed that rates are going to rise over the next 3-5 yr period. It seems to make sense that we should start thinking of booking a mortgage now so that it's set up in time for when our current one finishes in 5 months' time and the rates continue to go any higher. We were going to go for a straightforward 5 yr fix but I have started to look at offset mortgages. This is where I need your help..... Yorkshire BSoc are offering a 4.59% 5 yr fix as well as a 4.69% offset fix. Our mortgage is currently £195,000 but we are going to reduce this to £150k at time of remortgage due to maturing and surrendering endowments. Our house is worth about £400k. We have about £15k in savings. What do you think about offsets and do you think the offset option would be good idea? We are in our late 40s and are going to be helping pay for our 2 kids to go through uni so we want a fixed option and there won't be a chance to add much to any further savings. Would really appreciate any help you can offer. Thanks.

Gorgeous_George

On £150K over 25 years you will pay £8.58 more at 4.69% (£850.01) compared to the 4.59% rate (£841.43).

Your £15K in savings will earn £58.63 per month at 4.69%. Compare this to the £43.75 you could earn (tax free) in a typical ISA (at 3.5%) and the offset is marginally better (£6.50-ish per month).

GG

sdooley

PuzzleGirl wrote: »

It seems most people are agreed that rates are going to rise over the next 3-5 yr period.

It's not so much that they are going to rise (they may well not) but that they can't fall. So trackers are a bet with limited upside (the savings compared to current fixed rates) but unlimited downside.

If you have savings now might be better to use them to get your LTV ratio down, thereby reducing the rate you pay on a fix, rather than keeping the savings separate in an offset facility.

silvercar

sdooley wrote: »

If you have savings now might be better to use them to get your LTV ratio down, thereby reducing the rate you pay on a fix, rather than keeping the savings separate in an offset facility.

With a LTV of less than 50%, I can't see that rates will be any cheaper by going for an even lower LTV. Better to keep some savings in the offset so they are accessable should you need them.

You need rainy day money and you may also want to put something aside to help the children through uni. An offset means the savings money is reducing your mortgage as well as being available should you need it.

dimbo61

I have a fixed offset with the YBS and its been very good over the last few years.
You can add to your savings each month and take cash out when you need to ( new car/ uni fees)
I have just put all my ISA,s back into the offset because I get a better rate than last year and its tax free.
I would put the savings in the offset and keep the same mortgage amount you have now ( £195k) with £45k + £15K in savings your effective rate with be lower.
This is only my opinion so GOOD LUCK

dimbo61

PS can you change to repayment and pay off your mortgage before you want to retire.
I am paying off a £120k mortgage in 10 years!

Gorgeous_George

I popped into Barclays to open an ISA recently. The salesman (sorry, customer service adviser) asked about my mortgage. So I told him that he wouldn't be able to beat my BofE Base Rate +0.74% Lifetime Offset Tracker.

After a short pause I said 'Of course, if I could find somewhere to safely deposit the £40K from the offset savings that are currently earning just 1.24% I'd be interested.

He thought for a while and then suggested that Barclays Offset Mortgage pays 3.24% and the fee to switch was only £999. I made my excuses and left.

:rotfl:

GG

PuzzleGirl

Thank you all for your posts. This was my first post and it feels great to get some feedback.

It's certainly given us something to think about.

I put forward the Yorkshire BSoc offset as it is the only one I have been able to find that has a fixed term. At 4.69% it seems a fair deal. If interest rates rise in the future, I'll have the security of knowing my payments won't alter. Presumably then, as my savings will be receiving interest of 4.69% equiv, again if rates rise I could just switch my savings out of the offset into something which earns a higher rate.

Seems quite an attractive option, don't you think?

silvercar

Seems good, I happily took a 4.99% fix in 2006.

Remember that 4.69% is a net figure as you don't pay tax on the interest, so an equivalent interest rate on an account that is taxeable would be 5.86% for a 20% tax payer, 7.82% at 40% and 9.38% if you hit 50% tax.

dgibby

Sorry to jump into this conversation but it is along the same lines as my predicament.
I have a 5.49% (£195,000) fixed offset mortgage with First Direct (end Sept 2010). Between my wife and I we have approx £15,000 of ISA savings that have recently matured. Does it make more sense to withdraw these from current ISA providers and offset the FD mortgage against them. To me it does make sense but I realise we will be losing 5+ years of ISA saving. I am also a 40% tax payer. Any help greatly received

getmore4less

You really have to think about the long term benifits of the ISA, once the mortgage is paid off getting money into tax free shelters can be hard if you have surpluses over the annual allowances.

Keep badgering FD to allow the ISA's in the offset.

Don't forget any other lump sums that may come along as well.

Depending on how long it will take to clear the mortgage losing a few years ISA allowances now but starting again may be the best option.