Offset mortgage-FTB advice

teana

Hi,
Been reading a lot about offset mortgages and would like peoples opinions based on my financial position.

I tried out the shrinker illustration with the one account and it showed it could reduce my mortgage from 25 years to 4 years...seems too good to be true.

Anyway:

The house price is 120k
Need mortgage of 90k
I take home £1100 p/m
Outgoings for the next 4 years will be about £300 p/m
Savings in total currently is 50k (hoping to use the 30k as deposit leaving me with 20k savings pot)

My reasons for an offset is :

-Dont want to keep having to shop around every 2 years or so for a new mortgage to keep up with new deals
-would like to take advantage of the interest earned from savings pot to pay off mortgage

Advice or suggestions?
Ive also had a look at the complicated formula's-i downloaded the excel sheet thing which did various calculations but it felt a bit too complicated for me to use.

silvercar

Dont want to keep having to shop around every 2 years or so for a new mortgage to keep up with new deals

Then you need to look for an offset mortgage that is a lifetime tracker or similar. Offsets have the same sort of 2 year fix deals as other mortgages.

tilamok

I would be happy if sb can correct me on this but beware of the illustration provided by one account website.

Basically when you open up the "mortgage shrinker" and then fill in the
1) Value of home
2) Mortgage Amount,
A message will come up saying what your monthly repayment is.

Now when you fill in the second part which is
1) total income that you could pay into the account
2) total left at end of month after outgoings --- in this section, you must also deduct the monthly repayment else the illustration will think that you will be overpaying an extra "monthly repayment" every month.

Hope that makes sense
Cheers

jamesd

If you used all of your take-home pay to pay the mortgage, you'd need a take-home of 1,875 to pay off a 90,000 mortgage if you paid no interest at all and spent no money on anything else. It's completely impossible to do on those numbers. Even if you paid no interest and used all the savings to pay off the mortgage, the 800 a month you have after outgoings could pay it off in no les than 7 years and 3 months.

If you say what numbers you put into the mortgage shrinker and which one you used someone here will probably tell you what went wrong and how to fix it.

My best guess at the moment is that you entered savings of 50,000 even though you've reduced them to 20,000 for the deposit. Then if the offset calculator put the whole 50,000 to pay off the mortgage it would leave just 40,000 more to pay off. That could be paid off in a bit over 4 years, ignoring interest.

Are you sure that your budget is right? 300 a month in outgoings including gas, electricity, council tax, food and clothing sounds too low - certainly is here.

In addition to an offset mortgage, you should consider a completely flexible mortgage. For example, the Co-op does a 4.99% tracker mortgage with unlimited overpayment and unlimited withdrawing up to the overpayment amount. That's probably a lower interest rate than an offset mortgage, though it may not be. Since you can get your savings back out of the mortgage when you want to, it's a bit like a cheaper tracker with a bit of notice required.