Overpayments on One Account mortgage??

Broadway98

Hi,

First post here, so thanks in advance for any advice/help.

I currently owe just under £85,000 in a One Account offset mortgage with a variable rate currently set at 3.65 per cent. There are not significant savings in the account but I am currentlly making overpayments in an effort to get it paid more quickly.

Each month I pay minimum £1500. At that current rate I understand the mortgage will be paid by January 2016.

I am now looking at other options to get the mortgage paid off more quickly as possible for various reasons, not least the insecurity of my job currently.

Option 1 - Make a £1000 mortgage payment each month, but invest £500 min a month into some sort of equity plan (shares/bonds etc), or other saving vehicle that will hopefully amass enough return to allow me to make a lump sum repayment of my mortage after 3 or 4 years. Riskier option, but could be a good time to get back into Shares etc?

Option 2 - Move my mortgage to another type of account that will somehow allow me to pay this off more quickly, but still give me the flexibitility that the One Account gives me. Not sure if this will help significantly as the change of interest rate would not be drastic as relatively low as it is?

Option 3 - Stay as I am, avoid the risk of the above two options, and hope I keep my job...

Your help/advice here would be much appreciated as assume I am far from the first to ask such a question like this....

Thanks in advance...

:beer:

dwsjarcmcd

Option 1 - Very high risk but mitigated by making monthly amounts. Not sure 3 or 4 years is long enough and you would need to be careful of charges. Depending on your tax rate you would need to make a return of between 4.5 & 6% pa net of charges

Option 2 - Depends on the fees of alternative lenders and whether you want another type of product i.e. fixed rate. Have a look at someone like First Direct

Option 3 - I assume you need to keep your job for the other 2!

I'll add an option 4 which is to keep the account but pay the required amount into the mortgage and pay the remainder into the savings part. Exactly the same as you have but with greater flexibility to draw on the savings if ever needed.

ViolaLass

It looks like you don't understand what an offset mortgage is. You can make what overpayments you want, when you want and have access to those overpayments. I don't understand why you'd want to move to another type of account when you have the most flexible option already

Broadway98

ViolaLass wrote: »

It looks like you don't understand what an offset mortgage is. You can make what overpayments you want, when you want and have access to those overpayments. I don't understand why you'd want to move to another type of account when you have the most flexible option already

No I appreciate the flexibility, and would obviously be keen to ensure I keep that if I moved to another vehicle... Just keen to make sure that the overpayments I am making (I only need £900 a month minimum) is working as hard as it can.... once I have used it to make an overpayment its effectively lost, whereas if I try to invest it elsewhere its still working and hopefully amassing a larger amount to repay at later date ????

Broadway98

dwsjarcmcd wrote: »

Option 1 - Very high risk but mitigated by making monthly amounts. Not sure 3 or 4 years is long enough and you would need to be careful of charges. Depending on your tax rate you would need to make a return of between 4.5 & 6% pa net of charges

Option 2 - Depends on the fees of alternative lenders and whether you want another type of product i.e. fixed rate. Have a look at someone like First Direct

Option 3 - I assume you need to keep your job for the other 2!

I'll add an option 4 which is to keep the account but pay the required amount into the mortgage and pay the remainder into the savings part. Exactly the same as you have but with greater flexibility to draw on the savings if ever needed.

Thanks for that. Yes, keeping current income is key to all options I agree..... as for your Option 4, if I make payments into the savings part of my account is it working as hard as if I had used that to reduce the actual mortgage ?

ViolaLass

Broadway98 wrote: »

No I appreciate the flexibility, and would obviously be keen to ensure I keep that if I moved to another vehicle... Just keen to make sure that the overpayments I am making (I only need £900 a month minimum) is working as hard as it can.... once I have used it to make an overpayment its effectively lost, whereas if I try to invest it elsewhere its still working and hopefully amassing a larger amount to repay at later date ????

It's not lost at all because you can withdraw it any time you like. That's the point. The money sits in an overpayment account and counts against the mortgage so it reduces the amount of interest you pay but is still accessible. If you go for this option, then make sure you talk to your bank first so that they know that you want the money to be offset against your mortgage and not just paid off against it. It's probably what would happen anyway but it wouldn't hurt to confirm it.

And sure, if you invest it you might end up with more, or you might lose half. How would you feel if that happened? How much experience do you have of investing?

dwsjarcmcd

Broadway98 wrote: »

Thanks for that. Yes, keeping current income is key to all options I agree..... as for your Option 4, if I make payments into the savings part of my account is it working as hard as if I had used that to reduce the actual mortgage ?

Yes they are. Your savings are effectively used to repay the mortgage but gives you greater flexibility

wymondham

Do you have the full One Account, as your overpayments are then automatic and you dont actually make a mortgage payment as such - anything you don't spend is assumed to be a payment off your mortgage...

Broadway98

Thanks for replies, and Yes, I understand the risk that investing elsewhere may involve.. but look at the money invested in my pension and recall the profits they made before the slump, and think that may be repeated in the coming years....

Also, I am assuming the low interest rate remains, but if of course it increases, then the date of me clearing the debt moves further away too......

Thrugelmir

Broadway98 wrote: »

Also, I am assuming the low interest rate remains, but if of course it increases, then the date of me clearing the debt moves further away too......

To contain inflation. In more normal circumstances BOE base rate would be nearer 5%. So current interest rates are exceptionally low. To clear the debt quicker spend less. The more you can overpay and reduce the capital balance the better. Treat any interest saving as a bonus.

dimbo61

Just dont have more than £16K in the savings account! Incase you lose your job!
If you go over that amount then pay any extra off the mortgage as you can always have a " mortgage holiday"