Offset mortgage - is it worth it for me?

fluffpot

I find numbers all a bit difficult, so just wondered if anyone can give me some general advice.

Current mortgage about £70K and has about 8 years left to run. Is a repayment mortgage and we are now into the paying off of the capital (hence the interest rate cuts didn't make a huge difference to us!). Currently on a standard variable rate.

I have on average £8-£10K of savings with my bank and wondered if it was worth me looking into an offset mortgage. My gut feeling is probably not because of the low interest rate and of where we are with the mortagage (ie near the end). However I would like to know for sure!

Another factor is that I am self employed (for the last 4 years). However, the mortgage only represents about 15% of the total value of our house, so think this might make it a bit easier to remortgage??

I also wondered about making over payments, something I now feel in a position to do - maybe between £100 and £150 a month.

Help!!

Fluff

DVardysShadow

The criterion is simple. If the interest rate on the funds you offset is greater than the rate on the savings, then offset. Being near the end does not matter, if the amount outstanding [currently? £70k] is greater than the offset. If it is the other way about - savings greater than amount outstanding, then pay it down.

opinions4u

fluffpot wrote: »

Current mortgage about £70K and has about 8 years left to run. Is a repayment mortgage and we are now into the paying off of the capital (hence the interest rate cuts didn't make a huge difference to us!). Currently on a standard variable rate.

What rate is you're SVR? Who is your lender?

If an offset mortgage is available at 5% and you're paying 2.5% on an SVR, then you don't want to offset.

I have on average £8-£10K of savings with my bank and wondered if it was worth me looking into an offset mortgage.

It all depends on the rate you are paying on the debt and the rate you are receiving, after tax, on the savings.

My gut feeling is probably not because of the low interest rate and of where we are with the mortagage (ie near the end). However I would like to know for sure!

Not enough information provided for anybody to tell you an answer!

Another factor is that I am self employed (for the last 4 years). However, the mortgage only represents about 15% of the total value of our house, so think this might make it a bit easier to remortgage??

If your net profit is good enough, I doubt you'll struggle to remortgage. But you need to factor in fees and changes in rate to know if remortgaging and/or offsetting are going to work for you.

I also wondered about making over payments, something I now feel in a position to do - maybe between £100 and £150 a month.

Good idea. Or saving it up in a regular saver account paying 5% (4% net, 3% to a higher rate taxpayer) and paying a lump sum off the mortgage after a year if the net rate for your tax status is more than the mortgage debt.

DVardysShadow wrote: »

The criterion is simple. If the interest rate on the funds you offset is greater than the rate on the savings, then offset.

But not if that means moving your mortgage from a low SVR to a higher offset rate. In those circumstances the maths becomes a little more complex.

maninthestreet

How can the interest rate cuts in the last 12 months have had little effect on you if you still have £70K outstanding on the mortgage?

fluffpot

Thanks for speedy replies everyone. It looks like I need to get my calculator out...:(

Maninthe street - I guess that as our mortgage is relatively small and what we pay off each month is now mostly capital, the drop hasn't been huge for us. A friend with a scary mortgage of £2K per month has seen his fall by loads!

getmore4less

maninthestreet wrote: »

How can the interest rate cuts in the last 12 months have had little effect on you if you still have £70K outstanding on the mortgage?

It's the term(on repayments) that makes the difference the shorter the outstanding term the higher the % of the payment is capital so reduces less % wise over a mortgage with a longer term.

Joe_Bloggs

I think I don't understand.

It's the term(on repayments) that makes the difference the shorter the outstanding term the higher the % of the payment is capital so reduces less % wise over a mortgage with a longer term.

J_B.

getmore4less

Joe_Bloggs wrote: »

I think I don't understand.

J_B.

Do some examples.

£70k over various terms for 6% and 3% look at the monthy payments and the % drop due to a cut in rates.

.....I/O.....25....20......15.....10......8.......5
6%..£350...£451...£502...£591...£777...£920...£1353
3%..£175...£332...£388...£482...£676...£821...£1258
drop 50%..26.3%..22.7%..17.4%..13.1%..10.8%......7%


those on repayment with shorter terms see a relativly smaller reduction than those on longer terms or interest only.

this is what the OP was refering to.

dimbo61

Right fluffpot you have lots of equity in your home well done!
But you still have a £70k mortgage (debt) which to most people is not a small mortgage.
You also have £8-10k in savings and you are on your lenders SVR whatever that might be.
There are offset mortgages with lenders like first direct offering very good deals
but if you can I would overpay as much as possible while on the SVR.
Offset mortgages work very well for self employed people who can have several accounts to offset the mortgage IE TAX money, holiday money, xmas savings, emergency fund when work is quiet ETC.
I have an offset mortgage with the security of a fixed rate for 5 years and top up the offset accounts as often as possible thus saving me interest and clearing my mortgage quicker.
GOOD LUCK