Offset Mortgages

Shaun19660_1

I'm looking at coming out of my fixed rate mortgage (fee applies) and opening an offset mortgage.

I understand how the offset works, buy reducing interest payable using my savings.

This is what i'm planning to do (assuming i'm accepted for a mortgage).

I have a house with a market value of 160k, my current mortgage is 61k, which is made up from (original 52k) but now at 48k Endowment (due to mature october 2016), 4k on capital repayment and 9k on Equity release loan(repayment). There is approx 7 years left on all the mortgages.

My dad has 73k in savings which he is happy to effectively lend to me, FOC, as he isn't getting much interest from it at the moment. He has stated that this money and his house will be inherited by his three children, when he dies. However he wants the money to be available to him should he need it (he might need to go into a care home at a later date).

The question is, can i use the savings to offset the full 61k, ie no interest to pay, and then continue paying the same monthly amount into the pot, to reduce the capital ie 61k. My way of thinking is, that this will reduce the capital amount actually owed when the endowment matures.
I don't know what value that will be, but it is likely to be considerably less than the original 52k that i was told it would generate. I want to limit the financial damage when the mortgages finish.

Has anyone got one of these mortgages and is using it in the way i would like to. If so, are there any pitfulls or drawbacks that i need to be aware of?

Thanks

anselld

Most offset products would require you to hold the savings in your own name in order to do this which is not ideal under the circumstances you describe.

But some, eg Offset Plus from YBS allow you to offset svaings held by other friends and family. This means Dad keeps money in own name with full access as and when, but the balance offsets your mortgage up to the full amount.

Shaun19660_1

anselld wrote: »

Most offset products would require you to hold the savings in your own name in order to do this which is not ideal under the circumstances you describe.

But some, eg Offset Plus from YBS allow you to offset svaings held by other friends and family. This means Dad keeps money in own name with full access as and when, but the balance offsets your mortgage up to the full amount.

My Dad is prepared to transfer the savings into my name. Part of the reason for this is to get the savings out of his name and possibly prevent or avoid them being used, if he has to go into care (his health isn't that brilliant). I realise that i might have to give the savings back if less than the 7 year window, but in the meantime i will benefit from the reduced interest and he will still have the money if it is needed.

anselld

In which case yes, take you pick of the offsets. I can highly recommend First Direct.

not_tonight_josephine_2

Shaun19660_1 wrote: »

Part of the reason for this is to get the savings out of his name and possibly prevent or avoid them being used, if he has to go into care (his health isn't that brilliant). .

Worth bearing in mind that he may be regarded as having deliberately deprived himself of assets in order to avoid paying for care, and the council will refuse to fund him anyway. He should probably do a bit of research into this scenario before making a decision.

getmore4less

Shaun19660_1 wrote: »

My Dad is prepared to transfer the savings into my name. Part of the reason for this is to get the savings out of his name and possibly prevent or avoid them being used, if he has to go into care (his health isn't that brilliant). I realise that i might have to give the savings back if less than the 7 year window, but in the meantime i will benefit from the reduced interest and he will still have the money if it is needed.

The 7 year window is for IHT not care.

Remember care required for health reasons is free on the NHS.

As long as you plan to give the money back anyway and have the means to pay off your mortgage using the money will just help you reduce your costs.

ElvisUK

I would recommend First Direct too. The switch over from Lloyds (who were a great bank, but no good when I wanted a new mortgage) had a few issues with mislaid direct debits, but it was well worth it. It helps encourage you to save when you see all your accounts together, especially how much you owe on your mortgage. Before I just used to forget the mortgage and then cry when I saw my statement.
It has also saved us £1000 a month!!!!!
Yes, we had a silly mortgage before. Now it seems realistic. So yes, FD get my vote

Shaun19660_1

ElvisUK wrote: »

I would recommend First Direct too. The switch over from Lloyds (who were a great bank, but no good when I wanted a new mortgage) had a few issues with mislaid direct debits, but it was well worth it. It helps encourage you to save when you see all your accounts together, especially how much you owe on your mortgage. Before I just used to forget the mortgage and then cry when I saw my statement.
It has also saved us £1000 a month!!!!!
Yes, we had a silly mortgage before. Now it seems realistic. So yes, FD get my vote

Sorry for late response on this guys. I have approached FD as i am with HSBC anyway, but because of a recent job change and self employment they're not interested in giving me a mortgage. 27 years of banking and 13 years of mortgage payments without a missed payment and they won't even consider me, even if i have 70k of my 'own' money.

However the Leeds Building Society are considering my application. Their interest payments are higher, but as i intend offsetting most or all of the mortgage, then the rate doesn't really matter.

Another question, If i offset the entire mortgage and don't pay any interest (i can't find anything in the terms & conditions that says i can't) how do the banks make any money from me? Surely it would be in their interest to have a certain amount of interest chargeable debt?

splatt30

I love our offset!
One thing to bare in mind is that if you fully offset within one month you will be in a positive balance.
ie mortgage £60,000; offset £60,000
first repayment of £500 = mortgage £59,500 offset £60,000
the T+Cs of our offset will not allow you to earn interest on a positive balance so that £500 will be redundant, unless you then move it out of that account.
Good luck finding a product

Gorgeous_George

You cannot offset more than you owe.

I think evading costs (and making poorer people like me pay instead) is wrong.

GG

opinions4u

Shaun19660_1 wrote: »

Another question, If i offset the entire mortgage and don't pay any interest (i can't find anything in the terms & conditions that says i can't) how do the banks make any money from me? Surely it would be in their interest to have a certain amount of interest chargeable debt?

They won't make any money in the example you give.

But most offset mortgages have lower savings balances.

It does, however, explain why LBG have closed down Intelligent Finance for new lending. They don't have the wholesale funding behind them to support growing the lending and should they attract it all from offset saving balances they couldn't make any money!