MSE News: Offset mortgage costs are down but are they best?

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"The drop has prompted some experts to say they are an option for homeowners who want a decent savings rate ..."

Read the full story:
Offset mortgage costs are down but are they best?

alexlyne

I don't have enough savings to make it worth considering an offset mortgage. However, I am told by my mortgage provider that I am allowed to underpay by any amount up to what I have already overpaid. This seems to me to be an 'easy-access' way to put my savings into the mortgage, and still take it out in the future if needs be without penalty by simply ceasing to pay the mortgage. OK, I can't get it as a lump sum, but that seems to be the only disadvantage.

dimbo61

Can I just say to anyone reading about offset mortgages that they are the bees kees if you want to pay off your mortgage quicker and pay less interest.
The flexability we now have and the feeling of security of having a large offset pot and being "ahead" in our mortgage payments in uncertain times is very comforting.
The fact that rates for normal and offset deals are now even closer means you should look at offset mortgages and I think that self employed people should consider them.
If you look on the mortgage free board you will find many posters using them to reduce the mortgage and the " interest" they pay

BiggaThanBen

I don't quite understand this bit:

"If you used that cash as part of your mortgage you may also lose the tax-free status of the Isa when the mortgage is paid off as few providers ring-fence this money."

How is that possible ?

vacheron

BiggaThanBen wrote: »

I don't quite understand this bit:

"If you used that cash as part of your mortgage you may also lose the tax-free status of the Isa when the mortgage is paid off as few providers ring-fence this money."

How is that possible ?

I believe the article is highlighting that not all offset mortgage providers allow ISAs to be directly linked as one of your offset accounts. You would therefore need to move the ISA funds into their standard linked savings account, thereby losing their tax free status.

Barclays are one of the companies which allow ISAs to be offset, and this is the main reason why we went with them for our offset last year.
As it looks like we will be 100% offset in a couple of months, my wife and have opened two of their new Golden ISA accounts within the mortgage on the grounds that we will be then be able to un-link them from the offset when we are 100% offset and therefore start earning tax free interest on them again.

Hope this helps.

BiggaThanBen

I understand what you say about some lenders not offseting ISAs, but I was confused by the statement "lose the tax-free status of the Isa when the mortgage is paid off".

That looks like ISA was offset during the term of the mortgage but lost its status once the mortgage is paid off. If ISA wasn't linked to the mortgage at all, paying the mortgage off would have no effect on it.

horrid_henry

I have had an offset mortgage for many years and have recently overpayed into the savings pot to the point where my savings nearly equal my debt. The loan is part repayment/interest and part interest only However I have seen no change in the interest charged between when I had little savings and when when I have large savings. Why do I see no reduction in interest??

kingster2069

I have recently moved to an offset product mainly because I'm self employed. Not only does it allow me to offset my tax money against my mortgage interest. Also it gives me additional flexibility if work drys up I can gain access to capital built up in our home rather than risk losing it because I can't make the payments at that time.
One thing I would warm people against; if you suffer from impulse purchases, then this type of mortgage product might not be for you, as they often allow you to withdraw all over payments.