Offset interest only Mortgage query.

chrisandchris

Hi.
I would like some advice regarding the best mortgage option. I hope to purchase a buy to let holiday property. I have details of two mortages and need to know which is best.
OPTION A is an offset interest only mortgage at 5.49% for both mortgage rate and offset saver rate. The mortgage would be for £135,000.00 and I could put a maximum of £40,000.00 in the saver account. Repayment in 11 years.

OPTION B is interest only mortage at 4.99% . Plus I could deposit maximum £40,000 in high interest savings accounts and two cash ISAs (self and partner). After two years can put maximum £10000.00 a year into offset account.
Any losses from the buy to let would be set against earned income for taxation. Both Mortage set up costs are about the same. Option A has no
early redemption period or charges. Option B has no redemption for 2 years and then £250.00 charge.
I may decide it is better to buy a smaller, cheaper property with a mortgage of £70,000 and need to know again which of the above would be best.
Any advice will be appreciated.
Thank you.
Chris and Chris.

silvercar

Why go for an offset on a buy-to-let? You want all the interest as a tax deductable expense rather than offset it. I would get the lowest BTL mortgage rate you can and put your savings in a high interest account.

chrisandchris

silvercar wrote:

Why go for an offset on a buy-to-let? You want all the interest as a tax deductable expense rather than offset it. I would get the lowest BTL mortgage rate you can and put your savings in a high interest account.

Thank you for your advice silvercar. A friend who is a FA told me offset is best. He explained this would keep the same monthly repayment but interest in offset saver account would be transferred to reduce outstanding mortgage which is capital and this was best tax efficient method. . The capital owed would reduce but for taxation would still be treated has original investment amount. I do not fully understand so I and my OH will probably avoid offset and go for best rate and invest annually in ISAs to repay capital when redeem mortgage.

king_3

chrisandchris wrote:

Hi.
I would like some advice regarding the best mortgage option. I hope to purchase a buy to let holiday property. I have details of two mortages and need to know which is best.
OPTION A is an offset interest only mortgage at 5.49% for both mortgage rate and offset saver rate. The mortgage would be for £135,000.00 and I could put a maximum of £40,000.00 in the saver account. Repayment in 11 years.

OPTION B is interest only mortage at 4.99% . Plus I could deposit maximum £40,000 in high interest savings accounts and two cash ISAs (self and partner). After two years can put maximum £10000.00 a year into offset account.
Any losses from the buy to let would be set against earned income for taxation. Both Mortage set up costs are about the same. Option A has no
early redemption period or charges. Option B has no redemption for 2 years and then £250.00 charge.
I may decide it is better to buy a smaller, cheaper property with a mortgage of £70,000 and need to know again which of the above would be best.
Any advice will be appreciated.
Thank you.
Chris and Chris.

Can not recommend on Buy to Let. But it could be useful for you to use calculator to compare the deal in real terms, lnks as:

http://www.forgemill.co.uk/offsetornot.xls

chrisandchris

Thanks. will do .