First Direct offset question

speedbird1973

Hi there

I have a remortgage with FD. It's technically an interest only mortgage. My contracted payment is for the interest only, although they've worked out what I need to pay to finish the mortgage in 22 years.

Technically if I move a sum of money out of my mortgage account equal to the interest payment out of my mortgage account into my current account, and they then reclaim it as my usual payment - will that pose a problem?

I won't be doing it - I'm just curious as to the mechanics of it, naturally my captial balance on the mortgage would drop by the value of the interest repayment. Just curious really.

smckay

the way to think of it is like an overdraft - your limit is that of you mortgage amount.

therefore if you have already made a payment and your mortgage account is not at its negative limit I do not see why you couldnt do as you describe.

equally if you wanted to take some cash out to pay for something you could do so but you would extend the time needed to pay off your mortgage and the amount of interest that they would calculate for the next month.

Hope this helps

speedbird1973

My thoughts - I guess if one gets made redundant and can't affort the repayments is could be a useful strategy.

Lets hope it doesn't come to that!

thanks for the input

davidjwest

If you've explained it correctly then you couldn't do this as you'd never have any "spare" money in the mortgage account to move out as you're only covering the interest each month.

But of course if you've ever made any "overpayments" then you can move that money out of the mortgage and use that to make payments with in future etc.

As rates are so low at the moment I'd recommend you making extra payments if you can as you'll feel the benefit in the remaining years of your mortgage. Rates wont be this low forever so you need to think about what your payments will be like if rates go up.

lisyloo

naturally my captial balance on the mortgage would drop by the value of the interest repayment.

That's not right is it?
So let's suppose you have £100K mortgage and interest payment is £82.50 at 0.99%.
If you move £82.50 from you mortgae to your current account, then your mortgage balance is £100,082.50.
Your interest then "dissapears" from your current account i.e. doesn't affect the mortgage balance.

Sort term it should be ok, as long as you are withing the max limit that you agreed up front (should show clearly on your "accounts" page).
But the danger is clearly that your mortgage balance is rising and your interest payments will rise slightly too (albeit slowly).
Short term I think it would be OK, but long term, definitely not.

speedbird1973

Of course - I'm assuming there is some space in the mortgage. For example I have £150000 mortgage facility but I've paid off £50000. So if I choose for a month I can find out how much my interest will be that month (lets say £100) I can tranfer the £100 from my mortgage to my FD current account. They'll take the £100 back as my legitimate payment. So I'll have maintained my payment history and will now £100100 owing on the morgage?

I agree it's a slippery slope, I'm just curious as to how it all works.

davidjwest

speedbird1973 wrote: »

Of course - I'm assuming there is some space in the mortgage. For example I have £150000 mortgage facility but I've paid off £50000. So if I choose for a month I can find out how much my interest will be that month (lets say £100) I can tranfer the £100 from my mortgage to my FD current account. They'll take the £100 back as my legitimate payment. So I'll have maintained my payment history and will now £100100 owing on the morgage?

I agree it's a slippery slope, I'm just curious as to how it all works.

Yes, you can do that, at least until you've run out of available "credit" on your mortgage. As the earlier poster said, it's a bit like a huge overdraft!