Offset or not to offset?

tight_as_a_ducks

Offset or not to offset that is the question?
Is it be better to offset all our mortgage or pay it off and have done.
I understand that we are in a very fortunate position but we have worked very hard in the way of moneysaving and along with a timely redundancy we are looking for the best option.

Any suggestions will be welcome

jonnyb

I have thought a lot about this recently - won't be in a position to do it for 6 or 7 years though.
Being a cautious individual I would choose to offset, so I had access to the money if necessary.
That way your mortgage just becomes an interest free loan, paying back the capital, with no interest.
It might also make it easier to borrow in the future if you keep the mortgage outstanding, plus no concern about what to do with the deeds yet.

MikeP_5

My opinion on offset is that it depends on (a) How much you have to offset - the more you have in savings the better! and (b) What rate of interest the offset provider is charging/offsetting. If you can obtain a higher rate of interest on your savings than you would be paying on your mortgage, then your money is generally better off in the savings account. Conversely, if the offset mortgage rate is better than you would achieve in a stand alone savings account, go for it!

As ever, it is a matter of what is available at any given time - mortgage rates and, indeed, offset rates change so frequently!

tight_as_a_ducks

What rate of interest the offset provider is charging/offsetting.

Thanks for the reply but i don,t quite understand were your coming from with the statement above. If you can offset the full amount then effectivley there will be no interest or charges.

MikeP_5

Let's say you have a mortgage of £100k, and savings of £20k.

Also let's assume that your chosen offset provider charges, say, 5.7% interest.

In effect, this means that your £20k in the offset account is 'earning' 5.7%, or at least saving you 5.7% on that £20k of the mortgage.

Now let's say that XYZ Building Society comes out with a shiny new account paying 6% net (hmm....)

In this situation, your £20k would be better off in the XYZ account, as it would then be earning you 6% rather than 'saving' you 5.7%.

If, on the other hand, XYZs account was only paying 5%, your £20k would be better off in the offset account.

jonnyb

Mike, you are not getting the original poster's situation.

They have enough money to pay the mortgage in full if they want.

The main question is : do they settle the mortgage and effectively spend their lump sum of moeny, or do they offset the lump sum against the mortgage amount, therefore paying no interest, and just repay the capital outstanding to suit them ?

That's effectively an interest only mortgage with a rate of 0%.

silvercar

I don't see what you gain by paying it off. Keep it all offset, the money is there should you need it for anything you want no questions asked. Its not costing anything to have this facility.

Pay it off and your future choices are restricted.

You could pay off a certain amount each year (possibly match what your repayments would have been). That way you may pay off the mortgage and keep all the offset money!

Jays

silvercar wrote:

I don't see what you gain by paying it off. Keep it all offset, the money is there should you need it for anything you want no questions asked. Its not costing anything to have this facility.

Pay it off and your future choices are restricted.

You could pay off a certain amount each year (possibly match what your repayments would have been). That way you may pay off the mortgage and keep all the offset money!

I'll second that; in fact that is exactly what we are doing at present.

The type of taxpayer that you are also has a bearing on this, if you are a higher rate taxpayer then it becomes more advantagous to offset. I don't know the exact mechanism to prove this to you, but someone will come along with the 'knowledge' soon.

Xbigman

But if redundancy is involved the OP's OH is presumably in a new job and won't be secure for several years, so not having a huge amount in savings might be advisable for benefits qualification. If he is unemployed now then you might not want to offset or pay off the mortgage as MPPI might well pay it for you. It gets complicated because there are so many factors to consider. Personally I would pay the mortgage off. There is no reason to keep a mortgage alive unless you have something better to do with the money, and offsetting at the same rate is not 'better' its just 'equal to'.
Regards


X

jonnydoe

Please explain this to me..

Does £50k savings offsetting a 50k mortgage at , say, 5.5% earn you £2750 interest a year? As it isn't actually saving you any interest off the mortgage (you can't go into minus figures?). Once you've reached the magic number of what you're mortgage is doens't offsetting stop working?

I've never seen any real life examples but maybe someone else can enlighten me..

Xbigman

It depends exactly how you are offsetting and with who but basicly, yes you can only offset up to the amount of the mortgage. If offsetting with a savings account you get a lower rate of interest paid on any balance over your mortgage total.

However, if you can offset more than your mortgage total and you don't want the money for a specific reason then pay off the mortgage and move your current/savings account to one of the market leaders.
Regards


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