Offset Mortgage and Savings - Advice please

newrecruit

dimbo61 wrote: »

Good Luck on becoming mortgage free but dont forget to build up your ISA,s as long term savings plan !

I feel dimbo61 is right. ISAs need to be looked at long term savings plan, yielding returns you need.
Becoming mortgage free is everyone's dream, but in the long term housing market should recover (I hope) and with all the payment protections in place (which I hope you have), is mortgage repayment such a priority (unless you are struggling with monthly repayment)?
Isn't it better to look at other areas of life such as Retirement Planning, or Family Protection and look at other ways of making the funds you have work for you and then compare this against what you gain from the Offset and only then decide what is best. A good IFA can advise you.?...

Joe_Bloggs

I think MotheroftheKid is right in their approach. The offset funds do not have to go just in a ISA but can be put in accounts that offer instant access without penalty.

The problem with instant access cash ISA is that you lose a part of your allowance by withdrawing funds. So if the allowance is £3600 and you deposit £600 and then withdraw it all again you can only deposit a further £3000 in the year. This is because you destroy your allowance by withdrawing the money from the ISA.

Thus it would make more sense to build up savings towards a cash ISA in an offset savings account that, offered instant access, and switch the money to an ISA account just before the end of the tax year. This way you can still get the offset benefit and have access to your money without losing your ISA allowance.

Locoblade's Mortgage Comparison Calculator can be a useful aid in illustrating numerous scenarios. It is an excel based spreadsheet but I have tried it with open office today and it still looks as good.

J_B.

dimbo61

Who with an offset mortgage has LOST OUT
The IF deal that the OP has been offered is very good not just because of the RATE but also the flexability it offers.
If she can afford to she should fill her ISA allowance ( inside the offset account) and also build up savings in the offset account for easy access.
I would ignore any savings I had in an offset account and pay the normal repayment amount each month therefore clearing the mortgage more quickly.
If on interest only I would work out how much it would cost to repay the mortgage over a set term and adjust my payment to match.

getmore4less

One disadvantage of offestting ISAs is you don't accumulate the interest within the ISA making the tax free pot bigger.

MotheroftheKid

dimbo61 wrote: »

Who with an offset mortgage has LOST OUT
The IF deal that the OP has been offered is very good not just because of the RATE but also the flexability it offers.
If she can afford to she should fill her ISA allowance ( inside the offset account) and also build up savings in the offset account for easy access.
I would ignore any savings I had in an offset account and pay the normal repayment amount each month therefore clearing the mortgage more quickly.
If on interest only I would work out how much it would cost to repay the mortgage over a set term and adjust my payment to match.

The deal I've been offered is a "reduce term", therefore I repay both interest and capital at the current rate (2% above base rate), any offset I have, either in ISA or savings account will reduce the interest, so effectively I will be overpaying. My repayments will only be adjusted due to fluctuations in interest rates. I think that's how it works!

dimbo61

Yes you dont earn interest tax free inside the ISA but as rates are 2.5/3% at the moment then it may be better to offset the mortgage and you can still build up your savings inside an ISA ( £3600 this year and £5100 from april 2010)
Then if rates for ISA,s go much higher than the mortgage rate just move them!