Pay off mortgage or just leave cash in offset account?

eeperman

Hi all,

I am in the very fortunate position of having inherited a sizeable chunk of cash which should allow me to pay off my mortgage. The mortgage is an Offset Tracker mortgage with First Direct.

What I was considering was just to place a lump sum equal to the outstanding mortgage into the linked savings account rather than actually paying off and shutting down the mortgage. As I understand it the net effect would be that the interest on the mortgage sum would decrease to zero and I could then set up a standing order paying off the mortgage a little every month.

The advantage to this is that I would retain a lump sum which I could draw upon in an emergency whereas if I just pay off and shut down the mortgage then the capital is gone. Yes, I could remortgage in that case, but that would take time and expense - with my current plan the cash would be instantly available albeit I would have to start paying interest on the mortgage again!

Is this crazy? My wife would prefer to just pay the mortgage off and have done with it, but I am aware that once this money is paid into the mortgage then it is gone (well, converted into bricks and mortar capital)

One concern that I have is the protection that I would get from the FSA if First Direct went under (unlikely, but nevertheless). Would I lose the unprotected savings, but still retain the mortgage debt?

Any thoughts gratefully appreciated.

dimbo61

You dont give the mortgage amount but you are covered upto £50K at the moment and it goes up to £85K soon.
How safe is your job ? Having over £16K in savings affects benefits IF you lose your job!
I have an offset mortgage and have the money in the offset as an emergency fund.
Have you filled your ISA allowance for yourself and your OH ?
I would first fill your ISA,s and then put the rest into the offset and drip feed each month as many regular savers as you can while paying down the mortgage each month

hillcats

eeperman wrote: »

One concern that I have is the protection that I would get from the FSA if First Direct went under (unlikely, but nevertheless). Would I lose the unprotected savings, but still retain the mortgage debt?

Any thoughts gratefully appreciated.

I believe it would work like so,
You owed £100k / Savings of 100k offset. = £ NIL. One would wipe out the other.

anselld

With FD you can pay off and withdraw the capital at will within your limit, provided you don't pay it all off obviously.

So as others have said, if there are savings offers which beat your mortgage interest(taking into account tax) then draw capital to save elsewhere. Just make sure you can have reasonable access to reverse the process when rates move in the wrong direction.

jrs101

dimbo61 wrote: »

You dont give the mortgage amount but you are covered upto £50K at the moment and it goes up to £85K soon.
How safe is your job ? Having over £16K in savings affects benefits IF you lose your job!
I have an offset mortgage and have the money in the offset as an emergency fund.
Have you filled your ISA allowance for yourself and your OH ?
I would first fill your ISA,s and then put the rest into the offset and drip feed each month as many regular savers as you can while paying down the mortgage each month

Can someone help me out how to work out whether its best to keep the money in an isa (s) or put this money into the offset account?

ViolaLass

jrs101 wrote: »

Can someone help me out how to work out whether its best to keep the money in an isa (s) or put this money into the offset account?

Compare the interest rates.