Offset advise please

tamhem1

need a bit of help ,or probably a big bit of help ,I do not understand mortgages ,i am a mortgage idiot, that explained I can now tell of my dillema ,i have a offset mortgage ,it wasnt big to start about 31000, ,it was due to end in 2018, this nov it was down to 26000,I overpayed 5000 and it dropped to 21000 I have since payed another 10,000 and it stands at 10,100,I have approx 6500 left in savings to offset against it, I was paying 278 per month when it was 26k but I put that up to 300 ,firstly am I doing the right thing , by paying lump sums and by increasing my monthly payments, I do wish to be mortgage free ,but have heard that its best not to pay off the mortgage in full , and lastly is it best to leave the title deeds with the bank, I cant remember what rate Im paying off the top off my head, and what will happen when mysavings reach the same as my mortgage eg 6500=6500,
please bear with me and any answers in laymans term would be appreciated
thanks T

ViolaLass

When your mortgage reaches the same level as your offset savings, you will no longer have monthly interest to pay.

When you say you 'paid off' £5000 or whatever, do you mean you put it in the offset account?

Gorgeous_George

Overpaying and saving in the offset account are the same. You may even be able to access the money that you have overpaid quite easily.

If you want to be mortgage free, you will be when your mortgage = offset savings. The account may be closed and you cannot have more in offset savings than you owe.

Is it good to make overpayments or save in the offset? This depends on te rate. For example, assume that I have an offset at 2% but can save at higher rates even after tax (offset is tax free so for a 20% taxpayer 2% is the same as 2.5%). I can beat 2.5% elsewhere so save there instead.

When your mortgage ends the bank could keep your deeds or you could lodge them with a solicitor. A small fee would probably be payable. You could keep them in a safe at home.

You just need to decide if you want to be mortgage free or to maximise your money. It sounds like you want to be mortgage free so do it just the way that you are!

GG

Burridge60

Gorgeous_George wrote: »

Overpaying and saving in the offset account are the same.

This would be the case if you had a reserve account style mortgage but you do have the option to pay off the capital account of your mortgage ie the debt itself or to lodge your savings in the offset savings account.
In theory from an interest point of view there would be no difference.

BUT

If you reduce your capital debt then to borrow that money back would require the agreement of your lender and could be denied to you if the bank are unwilling to lend at that moment. Different if you have a Reserve limit up to which you can draw down again (One Account Abbey/Santander). Barclays/Woolwich allow up to 12 accounts including a cash ISA which can be offset!

Money in your Offset savings account can be withdrawn normally by bank transfer to your current account.

They are superb tools if used properly. If you are in the habit of replacing your car every few years and have used Dealer finance you could instead use your offset as cheap car finance by borrowing it from yourself and paying it back at the rate of the car finance. This assumes you are not on interest free car finance.