Paying off the mortgage or Taking Offset Mortgage

IamWood

I have a fixed rate mortage £70,000 with bank Natwest currently. The fixed term is ending in May. I've also managed to get saving £70,000 recently. I wonder whether it is a good idea to pay off the mortage, or just take an offset mortage with Natwest again? To take the offset mortgage, I may have to pay arrangement fee around £300. Is it worth it?

As far as I can understand, I should not pay any interest if you have the same amount of saving against the offset mortage. Considering the current economic situation, is the money safe against offset mortgage? Is there any other better option for me.

Any advice would be really appreciated!

de1amo

would you not have to pay tax on your savings-on the offset part??

IamWood

de1amo wrote: »

would you not have to pay tax on your savings-on the offset part??

I don't know. As far as I was told, I earn no interest on the saving and will not pay any interest to the mortgage as the saving is equal to the mortgage itself.

Am I right here?

de1amo

i dont know---if you dont get a reply from someone who knows-set a new thread!-i was just thinking latterally--

ERICS_MUM

There used to be tax implications for offsets between deposits and borrowings, but I'm not involved in that side of banking anymore and the rules might have changed in the past few years. You need to ask specific questions and get specific answers of either an independent mortgage adviser or your Nat West mortgage adviser.

Could you pay off part of your mortgage (say 50%) and put the rest in an off-set arrangement ?.

Good luck in sorting it all out.

Linda

de1amo

Does the mortgage guide on the site go into it?

getmore4less

de1amo wrote: »

would you not have to pay tax on your savings-on the offset part??

There is no interest to pay any tax on.
I have never heard of anyone with offsets paying tax.
My mortgage has been 100% offset for a few years now.

If this is all your savings then you are paying for the flexability to be able to borrow money relativly cheaply in the future.

Whats this worth to you?

If you have other savings to cover demands on your money then £300 is a lot.

dimbo61

If you do decide to take the offset mortgage then I would say to reduce the mortgage to less than £50K just in case.
Little point in doing this if you cant use the money in the offset account to earn a better rate of interest if put elsewhere.
How much are you paying on the mortgage each month now ?
If you saved a few thousand pounds until MAY then paid off mortgage and build up savings by putting mortgage money into ISA,s or regular savers each month.

IamWood

dimbo61 wrote: »

If you do decide to take the offset mortgage then I would say to reduce the mortgage to less than £50K just in case.

This does make sense and I'll take your point. Thanks :money:

dimbo61 wrote: »

Little point in doing this if you cant use the money in the offset account to earn a better rate of interest if put elsewhere.
How much are you paying on the mortgage each month now ?
If you saved a few thousand pounds until MAY then paid off mortgage and build up savings by putting mortgage money into ISA,s or regular savers each month.

I am currently paying £480 each month under fixed rate 5.59 :mad: the offset rate will be 3.75 with Natwest. I actually do not care of the rate as I am prepared to offet 100% (if I really do not pay any interest. Is this really the case? Is there any hidden fee at all?). By searching online, I cannot find any good rate ISA especially I have to pay higher tax rate on it.

The flexibility to acces the fund is quite tempting though. However being debt free is always my dream for years

VIGILANT22

With offset mortgages taxpayers can benefit from using their savings – because essentially with offset you are not earning any interest on savings, because it is being used to reduce your debt instead. .....Instead of accruing interest on credit balances in current accounts.... with offset these balances are offset against the amount of outstanding debt.

NB Leave account open with min balance so you can access funds easily in the future if required....