Maximising Offset Mortgage Savings Whilst Purchasing Next Car

cj25_2

Assume you could get the same terms on the finance deal, i.e. £149 a month with the £16k payment deferred for another 2 years.

Continuing the finance deal you would pay

£149 a month plus £16k in 2 years time

Alternately, if you took the money out of the offset you would increase the monthly interest on your mortage by about 2.99% x 16000 / 12 = £39.87. There would also be a small increase to the capital portion of the payment, but we can try to equate it to the finance deal and pretend you go interest only, paying the extra capital off with a 1 off payment in 2 years time.

Then by taking the money out of the offset you would pay

£39.87 a month plus £16k in 2 years time.

That's £110 a month less than the finance agreement!

It's a little bit more complicated if you consider the capital paid off as well, I'm not sure about the calcs but assuming 20yrs left on the mortage I think it would be equal to roughly

£88 per month plus £14.8k in 2 years time (or £88 per month for the rest of the mortage period)

The monthly payments increase, but this gets taken off the final sum, so you're still in roughly the same position and still have less to pay than the finance agreement both monthly and at the end of the period!

dimbo61

Good news you bought second hand M5 for £30K must be second owner!
Bad news you bought an M5!!!! petrol monster and very very quick also drinks petrol at £1.23 a litre and big service costs.
How old will the car be in Jan 2011 and what will it be worth if you trade it in for smaller car say 330/320d BMW.
As others have said you are only paying the interest on the £16K car loan and will need to repay the £16K sooner or later.
Good mortgage rate BTW until April 2011!

natalieadams

getmore4less wrote: »

Car loan 11.2%
mortgage 2.99% future variable rate? (bet it's less that 11.2%)

Which is cheapest?

BMW!

Do you want breakdown of your post and how much extra this is costing you?

Hi getmoreforless,

Thanks for your reply. I would love a breakdown as I don't fully understand some of the replies. You suggest you could tell me how much extra this is costing me - but by 'this' do you mean the car deal or the mortgage?

Cheers,

N

natalieadams

Cheers CJ. It's a little bit clearer - you're saying that taking savings out of the offset would cost me £40 a month, whereas finance will cost £149 a month.

At the end of the car loan I'll still need to pay the £16k, but if I pay the £16k to finish the finance deal in January I'll have an extra £149 a month to work towards offsetting the mortgage.

Sadly, I get lost when you talk about £88 a month? From where do you derive this figure?

Also, what's my strategy for finding a lump sum to put down on my next car, whenever that may be?

Cheers

getmore4less

natalieadams wrote: »

Thanks again for the replies.

Our mortgage rate is 2.99% fixed for two years, then to variable in April 2011.

So a lot cheaper than the car loan at 11.2%

There are two reasons for considering this method of funding - firstly, the way I pay for cars, and secondly, the long-term costs of a car loan compared to retaining the savings that have an off-setting function.

This could be where you are going wrong if you don't pay cash you are borrowing money.


Here's the detail:


1. I tend not to save for a car and 'rely' on other occassional lump sums - I've been lucky enough to have five tranches of maturing share options across the past five years, but these are drying up.

Fine you get some cash and spend it on what you want(allthough you could offset all of it)

My perspective as that when you buy a car it loses value, that costs money, which I try and equate to a monthly amount.

Simple (total costs - what you sell if for )/number of months
Untill you sell you will have no idea what the monthly cost is.

So, paying a monthly sum (in this case towards interest) is almost like paying a monthly amount towards a car.

Not really, that is the just cost of borrowing the money(11.2%) you still have £16k to pay and already forked out £14k.

My BMW hasn't lost too much value compared to other cars across the past year, and I wanted to work out whether there was an advantage to be retained.

2. Despite the higher interest due on the car loan on the short-term, what I can't work out is whether having the money saved off-setting the mortgage saves us money over the term of the mortgage, compared to paying the interest due on a car loan over a few years.

NOT relevent the money is borrowed/offset for the same length of time 2 years for this car.

In summary, which is cheaper - paying off the car loan, or leaving the savings off-setting against the mortgage. We pay a fix amount per month on our mortgage - a portion pays interest and a portion pays the capital. As the savings increase so the, interest payment goes down, and we pay off the more of the capital.

It really is as simple as looking at the two rates.

You have borowed £16k for 2 years at 11.2% and saved it at 2.99%

Cost £149 saving £40 so yu are payig £109pm you don't need to.

Think of it another way there are 2 finance option one at 11.2% and one at 2.99% which do you choose?