Help With an Offset Mortgage Decision

powerwin

Hi All

I am hoping to buy my first flat soon by myself. I am self employed, and although my work is going OK, I need a little safety net against the possibility of decreasing earnings, so I am thinking about an offset mortgage to keep the flexibility of having savings. Here are some of my figures:

2010 profit before tax = 31,700
2011 profit before tax = 28,000

Current savings = 30,000

Wish to buy flat for £100k

Questions:

1) If I need a safety net, do you think an offset mortgage is the best way?

2) How much of savings would you use as the deposit for an offset mortgage, and how much would you keep as savings?

3) Any recommendations for which offset mortgage provider to try applying to?

4) Any other comments welcome ...

Many thanks

powerwin

Any thoughts then please?

Thanks

hermanmunster_3

Hi - I know some people don't like offsets - I think because the rates are higher. But I found them really useful. I have had one with woolwich and then the most recent with RBS (better of the two). we put all our savings into the pot which meant that we cut our interest repayments by about half (0n average) - also money from some self employment was kept tucked away there until I need to pay the tax man etc.

Presumably for a 100k flat you are going to need to put about 30k deposit anyway to get a decent rate??

Ms_Sophia

hermanmunster wrote: »

Hi - I know some people don't like offsets - I think because the rates are higher. But I found them really useful. I have had one with woolwich and then the most recent with RBS (better of the two).

I've also been looking at offset and I could find 2.78% offset tracker in Woolwich and 3.75% variable with RBS. But you're saying RBS was better for you? was there any specific reason for that?

originalmiscellany

Hermanmunster - I have to agree with you - Although you have a higher rate, the flex it gives you is unparalleled...
We have all our savings in one pot and our interest rate shrinks to a very manageable amount.. Plus you can access it to dip into at any one time, so we don't bother with an emergency fund as it's just there should we need it. So stick all your savings into the offset, but request as large a mortgage as possible, e.g. if you can, get a 100k mortage, put in your 30k into the savings, then you'll pay a mortgage of 70k but you have access to the 30k should you need it, and hopefully every month you are overpaying a little.

So the alternative is that you can:
get a fixed 5 year mortgage at 3.99% which may be worth thinking about rather than an offset, although in terms of job security and offset would provide the more appropriate flex!

hermanmunster_3

Hi Ms Sophia - My Woolwich mortgage was ages ago - changed when I moved in 2005. RBS was easier as I had my current accounts with them so even more offsetting and easy transfers. No problems with the woolwich - and the rates you have found look good!

sebtomato

With offset, what matters is the actual rate you will pay as opposed to the announced rate.

For instance, if you take a £100,000 mortgage with an offset rate of 3%, and you have £10,000 on your savings account to offset against, you are only paying an interest rate of 2.7%.

The best benefit of offset mortgage is that you don't need to choose between repaying your mortgage faster or keeping some money available on a savings account as a safety net.

getmore4less

Go fo it, probably the best option to ballance cash flow and keep a safety net.

The extra costs(rate) are quite low these days.

I like Barclays/Woolwich, they allow cash ISAs as well as regular offsets.
you can also hide the savings in a OD so not hit the benifits trap

First direct have had the best rates/fees over the last few years.

YBS have offset plus(look it up) which is handy for some.

One Account AVOID bad history on rates.


Research current rates/fees I have not checked recently

hermanmunster_3

Glad to see that offsets have some very good rates now. Sometimes used to wonder what the catch was as they seemed too good to be true! The effective interest rate I was getting on my savings, as a higher rate tax payer, was at a level I couldn't find anywhere else -

Question is now I have fully offset.... what do I do with savings??

YorkshireBoy

hermanmunster wrote: »

Question is now I have fully offset.... what do I do with savings??

As a higher rate tax payer, a cash ISA would be the obvious choice for the first £5,340

getmore4less

hermanmunster wrote: »

Glad to see that offsets have some very good rates now. Sometimes used to wonder what the catch was as they seemed too good to be true! The effective interest rate I was getting on my savings, as a higher rate tax payer, was at a level I couldn't find anywhere else -

Question is now I have fully offset.... what do I do with savings??

For my offset I get a better rate in savings than the mortgage costs.
So cuurently have it all in savings.

Once fully offset, ISAs, monthly savers and NSI index linked(tax free) are worth a look.