Should I put my savings into my off set mortgage account?

bubbalooBUB

Hi, I'm a newbie here, fabulous site!

Am thinking about putting my savings into my current account, as it will offset the mortgage, - this means that I lose the interest on my savings, but it means that I can pay the mortage off a year earlier. Has anyone done this? :rolleyes:

silvercar

The whole point of an offset mortgage is to allow you to offset your mortgage against the outstanding amount. Effectively your earning interest at the mortgage rate and gross.

Some people aim to have their savings build up to the same level as their mortgage, so effectively they have no mortgage but can access the money at will.

Jays

Depends where your savings are coming from, I think. We have an offset too, but we make sure our ISAs are used up each year before we add to our offset savings. Also depends on which sort of tax payer you are, makes more sense for a higher rate tax payer to do it.

Others with more knowledge about this will come along shortly to help.

Jays

TerryB_3

bubbalooBUB wrote:

Hi, I'm a newbie here, fabulous site!

Am thinking about putting my savings into my current account, as it will offset the mortgage, - this means that I lose the interest on my savings, but it means that I can pay the mortage off a year earlier. Has anyone done this? :rolleyes:

The offset mortgage are usually at a higher rate. For example RBS Offset is 5.4%, their discount is 4.84%.

I'm guessing there's a formula out there somewhere that helps you work out which is more cost effective. Does anyone know?

Another alternative is to use your savings to reduce your mortgage.

Regards,
Terry

MortgageMamma

There is a sticky at the top of the mortgage board which contains the offsetting formula

bubbalooBUB

My savings are at present in ISA's. Think it makes sense to put the savings against the mortgage, as it means I can access them at any time , but still save a few thousand, and reduce the term. Thanks for all your help:beer:

Joe_Bloggs

Some lenders allow you to use cash ISAs in an offset mortgage scheme. I don't know what the transfer procedure is but Intelligent finance and Barclays /Woolwich cater for it.
In deciding what to do with an existing offset depends upon the rate of interest on the offset mortgage versus the net rate of return for alternative uses of the offsetting money. The higher the offset rate the more money you are tempted to pile in to counter the high rate of interest.
There are offsets out there that have competitive rates and you could get better value by keeping/moving your money to higher rate ISAs.
J_B.