Offer of offsetting

Daz1

Hi all

I currently am on a SVR of 2.5% with my mortgage provider. They have written to me offering to offset the mortgage against any savings I wish to deposit with them (savings however will not earn any interest as it is being used to save interest elsewhere).

My (limited) financial savvy says (and this is where i need your help)

1. It is better to earn more than 2.5% in a savings/ISA than save 2.5% on that amount on a mortgage

2. My ISA is maxed for the year therefore any savings account I need to consider should pay net amount of interest greater than 2.5%

3. Only once I cannot earn more than 2.5% net in any savings, would it be worthwhile to use the amount to offset the mortgage

Am i correct in this way of thinking or would there be any situations where this offsetting would become worthwhile

Thanks in advance

getmore4less

Thats pretty much it.

If they are offering the offset with no fees and the same rate then I would take it anyway you don't have to use it but it is a great feature.


JUst check carefully that by accepting you don't agree to them being able to change something so you could be worse off later.

One advantage of the odffset is that you don't have to chase the deals or move money when the bonus offers finish which can loose a few days interest.

Who is the loan with? different lenders have differentr features eg Barclays allows cash ISA in the offset pool.

silvercar

It also reduces your income as you don't receive the interest. So you pay out less on your mortgage but you don't receive interest. If you had received interest it would be added to your income and could have an impact on CTC, WTC and soon CB.

Daz1

getmore4less wrote: »

Thats pretty much it.

If they are offering the offset with no fees and the same rate then I would take it anyway you don't have to use it but it is a great feature.


JUst check carefully that by accepting you don't agree to them being able to change something so you could be worse off later.

One advantage of the odffset is that you don't have to chase the deals or move money when the bonus offers finish which can loose a few days interest.

Who is the loan with? different lenders have differentr features eg Barclays allows cash ISA in the offset pool.

The lender is intelligent finance. They no longer offer mortgages to new customers and so I guess this is not one of those "offset mortgages" as seen on TV a while back offering to shrink your mortgage by x number of years. Those typically had a higher rate which meant you needed a substantial pot of savings with which to offset before the APR became attractive. This one seems different. I remain on the SVR under the current T&C's and any savings amount I have with them is considered when offsetting...

Daz1

silvercar wrote: »

It also reduces your income as you don't receive the interest. So you pay out less on your mortgage but you don't receive interest. If you had received interest it would be added to your income and could have an impact on CTC, WTC and soon CB.

A perfect example of why it pays to ask on MSE......didn't cross my mind at all about this...thanks. So I guess if I am approaching the threshold of earnings interest etc, (think its £300 for CTC) I should do this as a way of keeping my interest income low but still benefitting in other ways.....good point silvercar

Daz1

One things that just occurred to me is that I am out of the penalty period for overpayments. What are your guys thoughts on overpayment rather than offsetting. My immediate thoughts are:-

1. Overpaying means the money is "tied up" in the mortgage. Accessing it might be more complicated than accessing a savings account i.e. if i needed extra money, it would really be easiest to use it to take a payment holiday and use the cash saved to meet my other expenses (although I would "raid" other savings before having to touch the mortgage account)

2. By placing it in a savings account (and offsetting), it is easily accessible and the money could be used in a hurry for anything I choose rather than for mortgage-related stuff, payment holidays etc


Any other ideas I have missed?

What is your advice.....overpay or offset?

TrickyDicky101

If you have the option, offsetting is better (for the reasons you mentioned) - the economic effects are identical (in terms of interest charged) but you retain flexibility.

You need to consider if you have the willpower not to go and fritter your savings away (something worth considering).

Peter_L

Like others have said, a great feature to have and with IF. I don't really have savings but offsetting the amount I have in my current account with them (before money comes out for bills etc.) has saved me over £250 over 6 years (not terrific amount but better than nothing - remember no savings involved). Despite some negative comments from some who have yet to back up their claims, I have found IF to be brilliant in handling everything online. My recent mortgage port was carried out both professionally and efficiently and I even have a mortgage sales rep (same one) ring me each Monday to enquire how things were progressing and see if they could help in any way ... as you have the facility to overpay, this will go into an overpayment jar called a reserve which you can withdraw from in future if need be, very handy and especially if you don't want to take a payment holiday (which you can twice a year)

pauljoecoe

I have been with IF for many years but not had a mortgage with them. i am now look into getting and offset and was surprised to find IF don't do mortgages anymore (for new customers - I am surprised they are doing them for current customers)

My feeling was that IF were running themselves down to merge customers with Halifax? They've also stopped current accounts. It seems they are only good for savings with new customers.

It's interesting that with Halifax online banking you can to stuff like immediate payments and yet IF can't. Move some money from Halifax to Santander within 2 hours (in my experience 2 minutes) even on a Saturday and yet the same transaction with IF takes up to 5 days!!!

Thrugelmir

1. It is better to earn more than 2.5% in a savings/ISA than save 2.5% on that amount on a mortgage

Your true rate of interest on the mortgage is actually higher.

As mortgage interest will be calculated daily and charged calendar monthly.

So reducing the mortgage interest will over time compound the saving.