fd offset mortgage - offset or lump sum payments?

allan673

hi,
i have a fixed rate offset mortgage with first direct (10 year fix at 5.15% - 9 years remaining).
and i make full capital and interest repayments.

my question is on overpaying - am i better off making lum payments into the mortgage account to overpay it?
or saving the lump sums in my first account, therefore reducing the interest paid each month.

which method will help to pay the mortgage off quicker please?

thankyou :beer:

mramra

allan673 wrote: »

hi,
i have a fixed rate offset mortgage with first direct (10 year fix at 5.15% - 9 years remaining).
and i make full capital and interest repayments.

my question is on overpaying - am i better off making lum payments into the mortgage account to overpay it?
or saving the lump sums in my first account, therefore reducing the interest paid each month.

which method will help to pay the mortgage off quicker please?

thankyou :beer:

It actually makes no difference as the balance (mortgage capital owed - savings) is the same in each case so the interest payable is the same.

Psychologically it may be better to pay off capital as you may be more likely to dip into savings, but financially there is no difference.

allan673

thanks, i was thinking it would pay the mortgage off quicker if i made payments directly into the mortgage account.
im talking about £100 per month overpayments really.

ive got 9 years left on the fixed rate, but 14 years left on the mortgage. and i would love to pay it off in 9 years when the fixed rate ends. £50,000 mortgage remaining at present.

opinions4u

allan673 wrote: »

my question is on overpaying - am i better off making lum payments into the mortgage account to overpay it?

I can't see that it would make the slightest difference on an offset. Worth checking the terms and conditions though.

If it was me, I'd use the savings account, as that gives me easier access to the money for other purposes in future. But don't do this if you think you may be undisiplined and dip in for non-essential spending.

Nice_guy

Hello,

As has already been advised, it makes no difference where the overpayment is stored, whether it be in your mortgage account or savings account.

Getting access to the money will not be a problem either whichever account it is in. If you have a mortgage of £50,000 for 10 years you effectively have got the facility to lend upto £50,000 with the ten year period - no questions asked. At the end of the 10 year period they will want their 50k back.

So for arguement sake, say you stash away £100 a month for the first year of your mortgage in your mortgage account. Your balance outstanding will be £48,800 at the end of year one. But because you have the facility to lend upto 50k at any time within the term you can get that £1200 back at any point.

There is no disadvantage/advanatge to saving the money in your savings pot or reducing your mortgage amount that I can see.

Nice_guy

mramra

allan673 wrote: »

thanks, i was thinking it would pay the mortgage off quicker if i made payments directly into the mortgage account.
im talking about £100 per month overpayments really.

ive got 9 years left on the fixed rate, but 14 years left on the mortgage. and i would love to pay it off in 9 years when the fixed rate ends. £50,000 mortgage remaining at present.

To achieve that you will have to repay the capital at an average rate of £463 per month over the 9 years. This excludes the monthly interest payments. Is that realistic? It's a lot more than your current £100 payments.

allan673

thanks, i also make full capital and interest repayments (monthly) - i set it up this way at the beginning.
it basically runs the same as a traditional repayment mortgage but with the offset facility.
im paying £460 per month, £220 roughly in interest, and £240 repayment on the capital - its coming down quite quickly really. as i overpay on top of this too, straight into the outstanding balance.
i will probably continue to overpay straight off the outstanding balance as im doing at present.seen as it makes no difference.

thanks

allan673

mramra wrote: »

To achieve that you will have to repay the capital at an average rate of £463 per month over the 9 years. This excludes the monthly interest payments. Is that realistic? It's a lot more than your current £100 payments.

as i mentioned before its set up as repayment style - i pay both capital and interest monthly, so £50,000 over 9 years @ 5.15% = £579.49 per month roughly.
im now paying £460 total plus overpayments, so i think im being realistic to pay it off in 9 years, i shouldnt be too far away. with bonuses etc i should be able to pay more than £100 extra per month.

im 100% sure ive got my figures right.

mramra

allan673 wrote: »

as i mentioned before its set up as repayment style - i pay both capital and interest monthly, so £50,000 over 9 years @ 5.15% = £579.49 per month roughly.
im now paying £460 total plus overpayments, so i think im being realistic to pay it off in 9 years, i shouldnt be too far away.

im 100% sure ive got my figures right.

Sorry, my misunderstanding.

I'm in the process of setting up my own offset with First Direct and will be trying to do something similar. Unfortunately the only fixed rate they have now is 2 years but the rate is low at 2.99% so I'll be trying to overpay as much as poss in the first 2 years.

allan673

i know, 2.99% is a great rate, shame its only for 2 years though. the online mortgage facility is great - you can see the balance coming down instantly with each monthly payment, and each overpayment.
its given me an incentive to pay it off asap.

i use this - to work out/estimate my figures.
http://new.egg.com/visitor/0,2388,3_54988--View_1028,00.html

whu

I have a 5 year at 5.29% and I think the offset is a great flexible facility- good luck in paying it off Allan