Offset mortgage maths ?

beaker12uk

I have an offset mortgage of approx £100,000. based on the average offset interest rate what 'offset savings' would be required to make this a better deal over say a fixed mortgage.

I have been offered a fixed deal (3 yrs) on my offset mortgage of 5.5%, and
have approx 5k savings, am I overpaying for my mortgage

your thoughts please ?

tomstickland

Well, looking at annual interest costs.
With non offset you are paying around, say, 4.5% of £100K which is £4.5K per year
with offset you are paying 5.5% on £95K which is £5,225
so it doesn't add up.

To break even you need offset funds of approx = 100,000 (1-4.5/5.5) = £18K
Or if it was a 5% repayment it'd be £9K

There or thereabouts.

beaker12uk

Many thanks... looks easy when somebody else does it...

As I was suspecting this is not the best deal for me so mortgage hunting I must go

Once again cheers...;)

tomstickland

If you could stooze £5-6K then you could make it worth it for a while.
Generally offset mortgages aren't much cop unless you have some decent savings.

Robust_2

You never said how much the interest on your savings account is/was? This has to be factored in to determine the real extent of any benefits. You must also take two other factors into consideration:

1: More sophisticated offset mortgages can allow for several savings accounts to be offset against the mortage.

2: Though interest rates on these accounts can be higher, you should look at the possible monthly savings on the offset mortgage payments as oppose to the monthly interest payments you recieve on the savings account, where the interest on the savings account is low - bearing in mind that basic rate tax will lower the monthly interest payments you recieve even less on the savings accounts if the savings accounts is liable for tax.