Offset Mortgage and Savings - Advice please 31 October 2009 at 6:01PM in Mortgages & endowments 16 replies 1.2K views

MotheroftheKid

I'm about to take out an offset mortgage with Intelligent Finance. I propose to take out a cash ISA with IF and use that to offset. I have about £10,000 in savings and wondered whether it would be worth putting this into a savings account with IF or look for a better return elsewhere. I would need easy access to this. The mortgage is "reduce term", and my plan is to overpay as much as I can afford each month.

Any advice would be greatly appreciated.

Joe_Bloggs

I though Intelligent Finance had stopped new mortgage lending ?
If you have an offset then the key issue is the rate of interest on the mortgage.
Deposit the offset funds with them if you can't beat their mortgage rate, in alternative savings ventures, after tax considerations .
J_B.

MotheroftheKid

I was an existing customer and had a joint mortgage. I'm now taking over the property in my sole name, hence mortgage with IF. The interest rate is 2% above base rate, currently 2.5%.

opinions4u

MotheroftheKid wrote: »

I'm about to take out an offset mortgage with Intelligent Finance. I propose to take out a cash ISA with IF and use that to offset. I have about £10,000 in savings and wondered whether it would be worth putting this into a savings account with IF or look for a better return elsewhere. I would need easy access to this. The mortgage is "reduce term", and my plan is to overpay as much as I can afford each month.

To achieve a gain by saving elsewhere you need to have a rate of:

- Higher than 2.5% in a cash ISA (e..g Barclays 2.58%)
- Higher than 3.12% in an easy access savings account for a basic rate taxpayer (e.g. Citibank 3.3%)
- Higher than 4.17% in an easy access savings account for a higher rate tax payer (not available)

You could get higher rates in fixed rate savings elsewhere, but if your mortgage rate increases and you're tied in to the savings you start losing money.

I don't think the gain on the Barclays ISA is worth enough to be worth bothering with, nor the mix of service / rate from Citibank.

So I'd offset!

Joe_Bloggs

I was an IF mortgage holder I managed to remortgage with Nationwide. I still have IF savings accounts. I face 2.0% plus Bank of England base rate when the tracker term ends on my Nationwide Mortgage in June. I am struggling to find a good home for my cash ISAs . The best rates require you to lock the money in for two or more years.
The IF rate is still a good rate in my view so whether it is worth your while is down to how much the mortgage is for versus the level of your savings.

My first mortgage was an offset and I borrowed £100,000 and had £700 in savings . IF were the first company that said yes and I stooozed a considerable amount of credit card money at 0% interest to offset the high interest rate.
J_B.

MotheroftheKid

My mortgage is £45,000. I've been playing around with the mortgage calculators to see whether it's worth paying off a lump sum to reduce the term, but I feel at these low interest rates it may be worth me hanging on to my cash for the time being and pay off a lump sum when they rise. I'll look at Citibank savings account. As for stoozing, I haven't the discipline for that!!

opinions4u

The gain for a basic rate taxpayer with the Citi thing is about £1.50 a month on £10k.

I'd leave it in the offset, because as soon as Citi manage their rate down you'll start losing money.

dimbo61

I also have an offset mortgage and find the offset account great for building up my savings while offsetting the mortgage ( Tax free !) and then when we need money just pop down to my lender YBS and ask for cash or a cheque.
Build up your offset savings while also overpaying the mortgage.
GOOD LUCK

MotheroftheKid

Many thanks for all your replies. I think at present the best thing is to open an ISA with IF, put the rest in a savings account with IF and pay off as much as possible at the end of every month. This saves opening other accounts etc.

dimbo61

The mortgage rate from IF is very good at the moment and the offset part is also very usefull.
If you can also offset ISA savings against the mortgage then that is great.
If in the future you can get a better rate of return by transferring your ISA,s to another provider paying a higher rate of interest than your mortgage you have that flexibility.
Stoozing is no longer that good due to the 3% transfer fee on most cards
Good Luck on becoming mortgage free but dont forget to build up your ISA,s as long term savings plan !

newrecruit

Is there a preference by the mortgage lender such as IF to arrange the offset from the savings (ISA or other wise) made with the same company?
Are there lenders who has any special package giving you special offer if you to do this?
or is the matter of just select the mortgage company that has cheapest interest and invest in a saving that gives highest returns?
Obviously, the Offset mortgage need to be arranged at the point of getting the mortgage (or remortgage), but can someone come into funds (may be getting an inheritance of winning a lottery) and decide to save it and offset the interest with the mortgage repayment?...or is it better to use the funds towards capital repayment and negotiate lower monthly repayment with the lender?
Are there anything to watch out for....the deal being not what they seem...I have heard of people of losing out...
If the savings is not index linked, the value of the capital can be lost due to inflation while mortgage repayment is readjust in accordance to inflation.
So by offsetting the interest on the saving, how much can a person expect to lose out vs gain?