credit card cheques for off set mortgage

shakie

I would appreciate any mathmatical guru giving advice on the following scenario.

I have an offset mortgage with halifax £46,000 at a rate of 6 percent and I have approximately £35,000 on deposit (all the money has been acquired via bal transfers/super bal transfers. as i pay off some of the credit cards they are now all writing to me offering credit card cheques at 4.9 percent with a max charge of £35.00 per cheque. One my MBNA card I have a limit of £11500. As a high rate tax payer can any one calculate the benefits. i reckon it could be as much as £300 pa on £11500. Any assistance greatfully received.

Galstonian

I think you may be overestimating there. I quick look at the difference between 4.9% (which you have to pay) and 6% (which you save) gives 1.1% pa. On £11500 that is (11500 * 0.011) = £126.50 but I suspect they are not offering them for as long as a year. Your tax situation is irrelevant since you won't be paying tax in these sums.

Reaper

Less the £35 fee:

£126.50 - £35 = £91.50 (less if not for a full year)

shakie

the tax situation must be relevant, as the capital is repaying the interest off my mortgage it is in effect giving me 6 percent nett of tax ie 10 percent gross.

Galstonian

It is not relevant I'm afraid. It would only be relevant if you were considering trying to earn interest not avoid paying interest. The offset mortgage is often sold as being equivalent to a gross AER way above any savings account and being tax free, however you can't benefit from both of these at the same time. It is either equivalent to a high AER (like the 10% you mention) which you theoretically pay tax on (bringing it back down to your mortgage rate) or it is at the mortgage rate but tax free. Smoke and mirrors from the sales department I'm afraid. Don't get me wrong, I have an offset, they can be very beneficial especially for depositing large sums of money that you don't actually own but they are oversold and hyped (because they charge more?)

DiggingOut

If you haven't used your cash ISA allowance, you could put £3K in First Direct at 6.25% until October and get a small amount more, another £3K next month. Seems hardly worth the hassle, though.

shakie

Topic closed I think unless anyone else has any bright ideas. Thanks for the input.