Offset vs paying off - what to do

Rygar

Hi, just wonder what peoples opinions are in this situation:

I have an interest only mortgage of £37,300 on A&L SVR. Im not tied into any deal but if I were to pay it off there is a £295 fee. Currently paying £155/month. I have no other debts.

I have an endowment policy that is worth £10,600 (paying in £64/month).

In 4 months time I estimate I will have savings of £28,000 (in a doing nothing standard bank account, silly I know). Savings added to endowment would be enough to pay off mortgage.

I have seen an IFA who thinks rather than pay off my mortgage I would be far better switching to a Coventry offset mortgage. It has a set up fee of £300 and the payments would be approx £116/month. There is no tie in and its very flexible - can overpay, pay off early etc without penalty.

Now as far as I can see the only advantage this would give me is instant access to cash should I need it. The disadvantage would obviously be Id have to pay an extra £300 + £116 (or more if interest rates go up) times how many months I keep it before I decide to pay off. Or is there something I am missing here?

I was considering holding back paying off my mortgage for maybe 6 to 12 months so that I do still have some savings once its paid off but at the moment I dont really need the cash for anything else. So I suppose my question is: is it worth switching to an offset for such a short period of time?

moneysavinmonkey

isn't the point that the savings and endowment are offset against the mortgage so effectively you have paid off the mortgage and the amount you pay will be £0 /month as long as you have the money linked to your mortgage. But you still have the option to use the cash if you want to.

Your IFA should be able to explain it better than me, isn't that what you pay him/her for?

dimbo61

Are you currently paying 4.24% on a debt of £37,300 ?
Does your savings earn you 4.24% after TAX ?
Is your endowment growing at a better rate than 4.24% or does it have any terminal bonus ?
You will have to pay the £295 fee when you do want to clear the mortgage or move lender to an offset mortgage !
If you have over £16K in savings ( which you do ) and lose your job the nice people at the benefits agency expect you to live off your savings !
So if you cash in the endowment and use your savings to clear the mortgage you then own your own home and can build up savings for retirement or change job / reduce your hours at work with no mortgage to worry about.
Only my views not advice and Good Luck