I am totally offset. What do I do now?

wabbitpoo

My mortgage is totally offset by my savings at First Direct. My interest ayments are therefore nil. I still pay 9 grand a year by way of paying off the capital. Before ringing them to ask this question (always a drawn out experience) can anyone tell me if it might be OK to just stop paying anything to them every month, and just leaving it al in place until such time as I either have to pay the mortgage back (20 years hence) or I need to draw back some of the money.

Indeed is this a sensible approach? I could pay it all off now but that would wipe my savings out almost entirely, leaving me a little vulnerable financially.

dwsjarcmcd

Hi, if your capital matches your mortgage then yes you should stop paying. Any amount of the mortgage will not earn any interest.

Leaving it as it is i.e. matched investment/mortgage can be sensible as it gives you future flexibility to borrow money at a good rate with no administration time or costs, so it can be a sensible thing to do, but that depends on your circumstances.

What is not sensible is to pay £9k per year and get no interest (unless your FD of course!)

wabbitpoo

I'll give 'em a ring then to see if I am "allowed" to stop paying. There might be a minimum amount they want me to pay.

Update, in case anyone's interested:
they told me that they can change the repayment type over to an interest-only type, so I don't need to pay off any capital (and also no interest as I am fully offset).

The obvious question then is, what to do with the surplus 9 grand each year? Anyone got any good suggestions? Off to the rest of the boards to see what I can find.

Jays

Hi wp

We're happily in the same position as you, totally off-set with FD, on an interest-only mortgage.

Personally, I am still overpaying the capital as I like to see the total reduce quicker than the mortgage term.

However, for the excess, we make sure our ISAs are up-to-date each year, and have a stock market portfolio too. We also have money in NW flex account so we can spend abroad without incurring charges and I am currently looking into the new Icelandic banks saving account.

We also make sure we pay off all our credit cards each money, so we don't pay interest there either, infact they are 'moneyback' so we earn a little too. Needless to say we don't take out any loans either, unless they are 0% interest and if we have to pay them by a certain date, we make sure we do that too.

Good luck with your excess, I'll see what other suggestions come along as I'll consider them too.

Jays

roswell

another option is to just use the offset to coninue paying you need never worry about the mortgage payments again and just use the excess to save / invest. this way at the end of the term you will be mortgage free and in the mean time you will be building your savings with your current mortgage payment + over payment.

dwsjarcmcd

Jays wrote:

Hi wp

Personally, I am still overpaying the capital as I like to see the total reduce quicker than the mortgage term.

Jay,
If your overpaying the capital then you will have excess funds in the savings element of your offset. This is not a good idea as you will not earn any interest on the excess.

I assume you withdraw the excess amount when you make capital repayments?

wabbitpoo

Or, if some place offering more than the bank rate were available, my savings could, of course, be working harder. So, 100grand in a high-interest bond someplace?

jobbingmusician

Lucky things! Just to point out one disadvantage of not repaying the capital, and sticking the regular payments into a high interest until needed..

Were you ever to fall on hard times, you would exclude yourself from the possibilty of state benefits, as you would have loads of savings. You'd still need these savings at the end of the period to pay of your mortgage, so could conceivably be left penniless.

But I guess you could investigate insurance (health? Not sure if mortgage protection would work and normally lasts only a year?) against this happening.

dwsjarcmcd

wabbitpoo wrote:

Or, if some place offering more than the bank rate were available, my savings could, of course, be working harder. So, 100grand in a high-interest bond someplace?

Wabbitpoo, think that is unlikely as you would need to compare the net rate (or alternatively add 40% - if that's your tax rate - to the rate your currently paying

southernscouser

Sorry to barge in on a subject where I have no idea whats going no!

But..........:p

If you have the money to pay off your mortgage then why don't you? Is it coz your savings earn more than the interest you pay on your mortgage?

wabbitpoo

southernscouser wrote:

Sorry to barge in on a subject where I have no idea whats going no!

But..........:p

If you have the money to pay off your mortgage then why don't you? Is it coz your savings earn more than the interest you pay on your mortgage?

well, with an offset mortgage, I can pay zero interest, zero capital repayments but could draw the money out again should I need it desperately.

I just wondered if, with such a large amount to invest (100k) that I might be able to get a really good rate somewhere.