MFW: Offset mortgage

bzz

When the interest rates on our ISAs plummeted a couple of years ago, my husband and I cashed ours in and, at the same time, switched to an offset mortgage. We were going to get 1.95% on the ISAs (down from 6.25%!) so putting it all in our offset to cancel out the (higher) interest on part of our mortgage seemed the most sensible way to do it.

We switched to the offset mortgage in June 2008, just before the mortgage rates also dipped (oops) and were locked in for 2 years at 5.25%.

At the start of the 2 years, our mortgage was £107,500. We had around £50,000 in savings at that point. We manage to pay £700 per month into the offset and the mortgage provider just took the payment out of this account.

A year after taking out the mortgage, we were at just over £103,000 (paying interest on £54,000 of it). Around this time, I managed to sell my previous flat and ended up with £20,000 to go into the pot.

Two years after taking out the mortgage, we are at just under £95,000 on the original mortgage (with £70,00 in the offset).

We renewed in June and got the same mortgage at a lower interest rate (3.79% for 2 years) with only £99 set up fee.

We're only paying £85 interest (and this decreases each month).

As I'm a student, I have two mortgage free dates: the first is Aug 2012, when the offset and the mortgage are equal but we have to keep paying in the £700 a month because my student loan starts charging interest soon afterwards (I'll pay it off in full from the offset account). The second (and real) mortgage free date is in Oct 2013, which is (incidentally) a couple of months after I've graduated and I hope I'll have a job then!

Obviously, if the banks start offering savings rates >3.79%, we'll have to have a rethink but, for the moment, this seems a good strategy.

SkintGypsy

Wow! It sounds like you are doing fabulously. Do you have big plans for when you are mortgage free?

bzz

My OH and I are both Scuba divers but it's a very expensive hobby so we've not been out for the last couple of years. After we're mortgage free, the plan is to save for three weeks of diving in the Maldives - that's our dream holiday .

We're in a good position financially right now and I'm lucky that my husband has, like me, always been a saver. We started our life together debt free (excepting the mortgage) and I'm aiming to keep it that way!

dimbo61

With the news that student loans interest rates may start to climb and with some lenders now taking into account student loans when working out mortgages you have put yourself in a very good position.
I took out a 5 year offset deal ( only wish it had been 3!) but have been very happy with our decision as over 1/2 the mortgage now cleared.
Try not to keep over £50K in one bank/building society ( this is changing soon)

bzz

dimbo61 wrote: »

Try not to keep over £50K in one bank/building society ( this is changing soon)

Is it not £50k per person that's covered? In that case, we're fine if it's a joint account.