First Direct tracker or offset. <65%LTV £10k+savings

petehere

We are finally on the last run of house purchase/sale.
We have a fair amount of savings (70k at moment).
After the house sale we are aiming to move to a larger house which would overall create a £50k debt.

Looking at first direct they seem the most compentative however we would like to keep ~10k in savings at least for a rainy day...
We also aim to take the mortgage over a larger term (say 20 years to keep required payment low incase of the dreaded redundancies) but to over pay so that the 50k total debt would be gone in 5-10 years.

The first direct tracker is 2.29% seems good.
Take a 60k mortgage and keep 10k in a savings account under the wifes name (thus 20% tax. I already use my ISA allowance and pay 40% otherwise). Say Halifax esavings plus giving a net 2.224% return.

The other option is to go with the first direct offset at 2.49%. This has a higher rate however we can offset the savings and current accounts.

So we would have £60k mortgage at 2.49% and £10k Savings at 2.49% + average combined current account of £3500. We would still either add to the savings or overpay the mortgage by the same amount as we would the normal tracker.

Which do you reckon? I have only ever had a fixed that switched to SVR in the past (lots of overpayments whilst SVR). It seems like it would be cheaper to use the standard traker + seperate savings account?

Also is it more beneficial in an endowment to overpay or to keep extra cash as offset savings? The explanation from first direct confused me. It sounded like it is more cost effective to overpay an offset capitol rather than adding savings to the savings pot and then offsetting this against the interest on the amount owed?

Any help would be great as my head is really starting to hurt....

sebtomato

You would offset £13,500 out of £60K, so that's about 22%. The effective offset mortgage rate would therefore be 2.49% minus 22% = 1.94% so you would be better off with the offset rather than tracker.

With the offset tracker mortgage, it makes no difference if you repay the capital, or leave the same amount of money on a linked saving accounts. Either way, the interest paid is reduced by the same amount. Either way, you can get the money back if need be.

Pincher

If you put £13,500 in a Building Society account that pays 2.49%, instead of offseting, you will get £336.15 interest gross, but you only get £268.92, because you pay 20% tax (£67.23) to George Osborne. Because you didn't offset, First Direct will want £336.15 for the £13,500 part of the principal owing, but because George Osborne has taken the £67.23, you now have to find an extra £67.23 from your own pocket.

On a £50k mortgage, the 0.2% (2.49 - 2.29) difference is £100 a year.

I am surprised that they don't let you offset a Tracker mortgage, since it's a variable rate. Ideally, you want a Tracker that you can offset.

dimbo61

We have had an offset mortgage for the last 5/6 years and are really happy with the flexability it offers!
We put money into the offset account to build up savings and can take the money out if needed to pay large bills!
If the savings rates on ISA,s are higher than the mortgage rate then we take money out and save in ISA,s instead.GOOD LUCK