Woolwich Offset Vs Savings Vs Overpayment

skibuddy

Hi,

Apologies if this has been covered to death but I couldn't find anything that covered my specific question.

I have 5 years and 3 months left on my offset mortgage. I currently have ~ £41K outstanding on an original £80K mortgage and have this completely offset with savings. Every month when a payment (currently ~£195) is made against the mortgage, I move the equivalent amount from my savings pot into a savings account in my wife's name, who doesn't work and therefore can claim tax back on her savings. FYI, the interest rate stated on my Barclays/Woolwich statement says it's 1.25% (Edit: I've just phoned the Woolwich and confirmed that I have a lifetime 0.75% above the base rate, which is 0.5%). I also have an endowment policy that covers £42K, that matures when the mortgage finishes. I estimate that I will be left with ~£29K on my mortgage when it finishes and I don't expect to get a lot more than this from my endowment, given the poor performance of it since we took it out in 1990 and that I also managed to get £6K compensation from L&G for it being mis-sold to me.

When we first took out the mortgage the interest rate was a lot higher (6-7% ish) and my wife worked, so it seemed sensible to use our savings to offset the mortgage and get effectively tax free interest. Now that interest rates have reached an all time low, I feel that the offset savings may be better in a "normal" savings account that gets 3% for example. btw, we both use our full ISA allowance every year, so there's no scope to use that.

Therefore I have a few questions:

1. Do I move all or part of the offset savings to a normal savings account in my wife's name ? My guess is that I would need an easy access account in order to move it back in a hurry if rates changed.

2. Should I use some of the offset savings to pay off the mortgage ? I can't see the sense in this as once I do this the money is no longer availableto me in case I needed it.

3. Should increase my monthly mortgage payments e.g. to £400-£500 or actually just move this overpayment into a normal savings account in my wife's name ? I feel that it would be nice to see the target mortgage deficit reduce but I suppose if it's in a savings account does it matter ?

Sorry to ramble and if I've missed any info let me know but I would welcome any advice.

Thanks

jamesperrett

I'm not an expert but it would seem sensible to put the money in a good savings account. You are unlikely to be able to borrow money at such a low rate in any other way and 3% or more is fairly easy to obtain from a savings account provided you keep an eye on any special terms and conditions.

I have a similarly low mortgage rate and, while it is tempting to pay off the mortgage further, I've decided to stick any surplus money into savings where it earns more than the mortgage costs.

Cheers

James.

dimbo61

You could also cash in the endowment now and put the money into the offset account and then overpay each month by the amount that you no longer pay for the endowment premium.
You are allowed to put £5100 each in april 6th ( A&L 3.5% flex ISA)
There are also several regular savers paying 4/5% before tax.

getmore4less

If you have 100% offset start thinking like you are mortgage free(which you could be) it currently cost you nothing.

You could setup the mortgage DD from the mortgage current account and put the offset saving there so it just looks after itself.

2. If you overpay your mortgage reserve goes up so you can get the money back.

1.you have access to money at 1.25% so anywhere that pays more(after tax) it is worth borrowing it back while it save you money

3. Just shuffling money.


Plenty of instant access savings accounts pay more than the 1.25%
Also look at all the monthly savers out there barclays are paying 3.2% on theirs so you can set it up online.

Start thinking about all this spare income, you need to start investing it for the future that includes the money from the endowment the mortgage is allready paid of(unless you spend the money in the savings)

getmore4less

dimbo61 wrote: »

You could also cash in the endowment now and put the money into the offset account and then overpay each month by the amount that you no longer pay for the endowment premium.
You are allowed to put £5100 each in april 6th ( A&L 3.5% flex ISA)
There are also several regular savers paying 4/5% before tax.

Did you read the OP?

100% offset and allready uses the ISA alowance each year.

regular saver are worth a look.

skibuddy

getmore4less, I had considered doing the DD thing so it looks after itself but didn't see any financial benefit from doing this, other than it's neater. I'm interested in your comment about overpaying and the effect on the reserve. How will the reserve be affected as the next 5 years tick on ?

I agree point 3. is effectively shuffling money.

Regarding spare income, are you saying that if I set the mortgage up to pay itself off, then I will have to think where I invest the lump sum from the matured endowment that I will get in 5 years ? or are you saying I should just cash this in now and invest it ? I feel that cashing in the endowment may be sub-optimal given that it's biggest bonus returns should occur over the next 5 years.

getmore4less

The endowment is just a savings scheme treat it like any other is it performing better than the other options avaialble.

When you overpay a Woolwich/Barclays mortgage the reserve on the mortgage current account goes up to reflect the full term (you can see this on-line ). I think it depends on what option(reduce payment or term) you have on your offset n how big the reserve gets. If you think you might need the money and do not need to hide the offset savings(for benifits) just keep the money in the savings.

Cannon_Fodder

A bit off-topic, sorry, but potentially a factor...

Have seen threads in recent weeks about the withdrawal, arbitrarily by Lenders, of facilities to allow withdrawal of reserves/overpayments/equity from some products.

Is there a concern that offset products like this one might follow suit? Any chance the small print has a get-out clause?

Might be worth holding more in normal savings just in case?

skibuddy

Thanks for the replies. I've got to no reason to "hide" the money in the offset account, so it looks as if normal savings may be the way to go for the time being. I hadn't seen the threads regarding withdrawals but I suppose this would only affect my reserve and not the offest savings pot.

I'll need to check the current surrender value of my endowment to see if I could do better elsewhere but given this gives me life assurance on £42K as well I'll probably leave this running.