Offset - need help...

CMBell

HI All, Our fixed rate is coming to an end and am not sure whether to go for offset now. We only have 67,000 left on mortgage with 15K savings, used the calculator and thought it said better with offset then saw the savings at end of term are higher with std mortgage.

Confused :-(
Would offset be the best option or to try and overpay on a Nationwide mortgage?

thanks in advance

casper_g

Without knowing the interest rates that apply for the two options, it's difficult to be specific. However, in general you pay a higher rate for an offset mortgage. If the Nationwide mortgage has a lower rate and allows unlimited overpayments then overpay it. The main reason to prefer the offset one would be if you needed to be able to get at your savings in the future, but if this doesn't apply then overpay away!

getmore4less

The MSE calculator is complete B**cks last time I looked.

There are a number of very basic errors that make it clear the people Specifying this don't know what they are doing.

I reported it but no idea if it has been fixed.


For most people the offset will not be the cheapest option, you need/want some of the flexability that offset give you.

For offsetting you need to do a simple calculation

You need the rates of the normal mortgage(Rn) and the equivilent offset(Ro), then a rate for the net savings(Rs)

SO there are two options for a mortgage(M) with savings(S)
Mortgage interest - savings interest or offset interest

compare those to see which is the best.

M*Rr - S*Rs == (M-S) * Ro

or

S*(Ro-Rs) == M*(Ro-Rn)

jamesd

There are three key things you also need to know:

1. The interest rate for the non-offset mortgage.
2. The after tax savings interest rate you would get if you did not use an offset mortgage.
3. The offset mortgage interest rate.

Once we know those things we could tell you which would be cheaper.

Don't stick to just one mortgage lender, though. First Direct are often going to be the cheapest offset mortgage provider so you should check their rates. They also offset the current account balance and provide an overdraft facility at the mortgage interest rate if that's of interest.

I see that with what I assume is no more than 50% LTV you can get these deals:

2 year tracker: Nationwide 2.59%+£900, First Direct offset 2.59%+£199. FD offset tracker wins: it's lower cost even without offsetting.

Life of mortgage offset tracker: First Direct 2.79%+£199.
5 year mortgage tracker: Nationwide 2.75%+£0 then SMR, currently 3.99%

So for lifetime or closest Nationwide offers the FD offset is very close on interest rate even over the first five years, but the fee has to be allowed for. Never having to pay another remortgage fee is a possible advantage of the lifetime deal.

I'll compare the last two in more detail assuming 3.3% interest rate after tax on ISA savings, the current best deal. That was quick. 3.3% is higher than the mortgage interest rate so you're worse off by putting the money into the offset account. For neither of the deals can you be better off with offset at the moment because mortgage interest rates are too low and cash ISA rates too high.

It doesn't look likely at present that you'll be able to win from offsetting if you have cash ISA allowance available to use. But for a two year deal the FD offset deal wins anyway just because it's cheaper and you gain a little on current account offsetting as well.

dimbo61

As others posters have said you have given NO INFORMATION!
Now the difference between a 5 year fixed rate deal with YBS is only 0.1% from a fix to an offset fix.
Hands up I love offset mortgages and so do lots of other MFW,s ( mortgage free wannabes)
Why you may ask because you have a great deal of flexability in overpaying or building up savings in the offset accounts.
So without knowing the rates, mortgage amount, fees etc we cant help you

TrickyDicky101

Also, depending on when you took out your present Nationwide mortgage, you may already have offset-like features: my Nationwide mortgage was taken out in 2005 originally with a 5 year fix. I made overpayments over those 5 years and it was only when I went to Nationwide to ask about porting the mortgage to another property that I discovered I could request these overpayments be 'given back' to me (ie effectively increasing my mortgage balance to what it would have been without the overpayments). So, I can make overpayments and can at any point get Nationwide to pay these advances back to me (ie very much like an offset mortgage). I believe this facility is not available in later Nationwide mortgages.