Barclays/Woolwich Offset Mortgage now fully offset. - Where to go from here?

vacheron

Hello Everyone.

I have a couple of Barclays/Woolwich offset mortgage questions for any experts or keen number crunchers out there to get their teeth around.

On Tuesday I reached the fortunate position where the savings in my Barclays offset savings accounts now equal my remaining mortgage so I am effectively paying zero interest.

Today the mortgage stands at £178K and has 23 years 10 Months remaining.
The mortgage was taken out in May 2010 for £187K over 25 years.
It is a repayment mortgage and the interest rate is 3.49% variable (BBBR + 2.99%)

I have been using the "Reduce Payments" rather than "Reduce Term" option in order to retain the maximum guaranteed funds in my savings accounts for whatever the future may bring. My latest statement from Barclays shows that next month my reduced mortgage payment will just over £400.

Ok, background information over, now to my questions (finally!)

Question 1

Dividing my remaining mortgage (178K) by my remaining term (285 months) shows a monthly capital repayment of £625 per month is necessary in order to repay the mortgage by the end of the term.
As Barclays are only asking for £400 this month my assumption is that they must be intending to to take an amount each month which is equivalent to what the capital element of a standard repayment mortgage would be. Can anyone confirm if my assumption is correct?

Note: I have been put through to the usual Barclays "customer service" foreign call centre with the usual hopeless result I have come to expect since joining them. They had no idea what I was asking and might as well have asked if they could "quote me happy"! :mad:

Question 2

I wasn't sure whether this should go here, or in the DFW or savings and investments board, so I hope I have made the right choice!

If my assumption in question 1 is correct, my capital repayments will be increasing from £400 to £920 over 24 years which is an effective repayment "inflation" of approximately 3.7% PA.
My personal feeling is that this is too high a figure over the next 24 years for the underlying UK inflation to erode the future repayments. However my gut instinct tells me that leaving the capital repayments to run their course for the next 24 years would still somehow be financially preferable to paying the entire amount off now in 2011. (In both scenarios I would not be earning any interest on my savings). Does anyone have any gut feelings / insight into this belief?

All comments welcomed as well as any other options I may have overlooked?

Oh, I am 37 in case that may be a factor in the best approach to take.

Thanks for your time.
Vacheron.

getmore4less

Think mortgage free, you just fund the mortgage from the offset savings.

Now you can focus on investing the spare money from income.

Questions become a non issue

One trick with Barclays is you can start filling your cash ISA's and offset those so you end up with a chunk of money in a tax shelter, as you get nearer the end you can start bringing the money out of the offset pool and pay the mortgage from income


Another trick with Barclays is you can pay off most of your mortgage and this will give you an equivilent overdraft in the mortgage cuurent account.

Handy if this is all your savings/investments because you can then qualify for benifits because you have no savings.


The advantage of keeping the mortgage running is you can always withdraw the cash if needed or like a lot of us that got these a while back take the noney out and put it in savings at a higher rate than the mortgage

Bob78

I was looking at the offset mortgages and they seem to be on first sight such a good thing (i.e. your savings and current account reduce the amount of interest you have to pay on the mortgage. so if you have 10K saving & current account and 200K mortgage you'd only pay the interest on 190K).

What are the pitfalls of going for an offset mortgage over any other mortgage? And why don't more people go for them?

Thrugelmir

vacheron wrote: »

[/INDENT]All comments welcomed as well as any other options I may have overlooked?

I'm not familiar with this product so could you explain how it works.

Also what is the case if your offset balance is larger than your mortgage balance?

getmore4less

basicly an offset.

All offset account net against the mortgage debt,

positive ballance pay 0%

KentishLady

In answer to your questions:

1) you have th basic idea here. As your mortgage balance decreases interest progressively forms a smaller proportionof the required monthly payment. At the same time the capital repayment portion increases. If you are offsetting on a payment reducing basis this means the net payment due will slowly increase over the term of the mortgage because your payments (if you are 100% offsetting) are mostly comprised of capital repayment. I say mostly because your current months payment is reduced by the offset benefitt earned last month which can lead to a slight anomaly depending on number of days in the month and on whether the base rate has gone up or down.

2) now this is where you have to consider your options. As your mortgage balance decreases you don't need as much money in the linked accounts to remain fully offset. So you need to decide how to invest the excess. You've already been given some suggestions which hopefully have given you enough ideas. Just bear in mind the comments about savings/benefits but also remember if you part redeem the mortgage there is allways the possibility all or part of the resulting overdraft could be withrawn in the future ie you risk locking your savings away without getting them back.

Thrugelmir

getmore4less wrote: »

basicly an offset.

All offset account net against the mortgage debt,

positive ballance pay 0%

Thanks for the clarification.

I asked as the current level of capital repayments are insufficent to repay the mortgage over the term. So doesn't seem to make sense.

I do have an offset myself. However any interest earnt on the offset account is used to reduce the balance. The monthly payment remains the standard amount.

vacheron

Thanks everyone for your replies.

getmore4less

I completely agree about the uesfulness of the ISA offsetting element of the Barclays product, and this is one of the reasons we chose this mortgage. I moved my ISA of around 45K to Barclays when we took the mortgage out and this year both my wife and I took out and filled up one of their Golden ISA's each with the intention that when the mortgage was fully offset we can easily unlink these accounts from the mortgage at which point they will start earning interest (at 3.25% IIRC).

kentishlady

Thank you for confirming my first question. When I did the maths it did seem too coincidental for it not to work this way, but good to know for certain. I'm going to pop into the branch (wouldn't trust the call centre to open a tin of rice pudding!) and see if there is any way they can change the mortgage payment which is currently debited from my Halifax current account to a direct debit from one of my Barclays offset accounts. I was planning to arrange a fixed standing order from Halifax to Barclays to acheive this but as the amount taken will be gradually increasing then this won't be so easy.

As getmore4less and yourself both mentioned, the ideal option from a benefits perspective would be to move the funds into the mortgage account as one big overpayment and that this would mean that I would be eligible for means tested benefits even though I am in exactly the same finincial position! :think: I have avoided doing this for the exact reason you mentioned, that I would then be using the banks "discretionary" mortgage reserve which I have read have sometimes been pulled or greatly reduced leaving the customer with a much reduced position. This is the only concern preventing me from doing this at the moment.

I don't have any problems investing any additional savings as I used to do that lots before I bought the house. My concern is whether to repay the fully offset mortgage now or let it run it's course?
I'm now pretty convinced to let it run using the analogy that if I pay the last £920 capital payment now rather than in 24 years time, it should be worth much less in 24 years as inflation will have eroded its "buying power" by then.
I'll just prey that we don't have net deflation in 24 years, but then I guess we'll have bigger things to worry about!

vacheron

Bob78 wrote: »

I was looking at the offset mortgages and they seem to be on first sight such a good thing (i.e. your savings and current account reduce the amount of interest you have to pay on the mortgage. so if you have 10K saving & current account and 200K mortgage you'd only pay the interest on 190K).

What are the pitfalls of going for an offset mortgage over any other mortgage? And why don't more people go for them?

The big pitfall is a lack of self discipline. If you don't have that then they can prove to be quite expensive.

The Australians use them as the norm and have done for years. It just seems that the UK providers have been a bit slow to catch on.

getmore4less

As far as I am aware the reductions in reserve were for those that had normal reserves.

Those built up through overpayments on offsets were left(mine was).

It is however a bit of a risk they could withdraw them from offset customers but I think the terms give you enough notice to take it out and put back into a regular offset savings account.


I think you can set up the DD from the mortgage current account so you could use that to keep the 100% offset savings and the regular payments just migrate the money from reserve to mortgage.



Onr thing for Bob78, as well as the discipline the main benifit comes from overpayments and the flexability to get them back.

An few £k average in a current account has a tiny impact n the overall position.