clearing offset mortgage?

jaxster1

Hi, can anyone help explain what would be the best thing for us to do?

we have a repayment offset mortgage of £91,000 fixed at 4.79% until 2014. we can pay off 4% per year without penalty.
Due to an inheritance we are in a position where we could clear the mortgage but don't want to pay the redemption penalty.
We can put 91k in the offset savings part which would cover the mortgage interest - this would leave a monthly payment of £80 (the capital repayment part).
We want to completely minimise our outgoings, and this is the part where I am being a bit dim.
Are we best to:

a) ask if we can change to interest only - that way we won't have any payments to make, and at the end of the fixed period we can just clear it. One reason against this (if the mortgage company would let us) is that my husband is concerned about the GFC and if everything really went t*ts up we could lose the money sitting in the savngs account and still have the same amount of mortgage. (realise there are 'guarantees' but i'm talking worst case scenario!).

b) put the 91k in the offset, make a lump sum repayment in January and continue to pay £80 a month. Which we would rather not have any payments as we are trying to get our outgoings down to bare minimum. But at least the mortgage would be reducing...

and then...


If we do scenario . Would it be the case that, as we made each £80 payment, our mortgage balance would come down by £80? If so, our balance in the offset part would then exceed the mortgage by £80 each time? Is that right? So could we then withdraw the £80 back each month?

Does any of that make any sense?

Would welcome any opinions!

kingstreet

Changing the mortgage to interest-only appears the least complicated option. Just in case the lender won't allow it, I'd suggest the following.

You haven't told us how much you'll have, so I'm assuming it's just the £91k.

Put £3k into an account and use that to pay the £80 per month capital payments for the next three years until the fix ends.

Putting £3k less in the offset will mean you pay £11.98 a month in interest at 4.79%.

At the end of the three years, the cash you put aside will be exhausted, but the mortgage balance will have dropped by at least that much.

dimbo61

Wild guess but are you with YBS?

getmore4less

If 100% offset you effectively pay nothing(as if you paid it off in full)

If you can, just get the payment taken from an offset accounts and it will look after itself


If the lender goes belly up setoff applies to savings/debt.

Trying_to_be_good

I'm only allowed to offset 95% of the balance of my mortgage (not that I'll ever have that much saved!) - any more in the savings account doesn't earn interest either, so it's just wasted. Check the maximum amount that can be offset on your own deal, and if they can take the payment from the offset, it would be super-simple!

Thrugelmir

Are you sure that depositing money in the offset account reduces your monthly mortgage payment. With many offsets the interest earnt is credited to the mortgage account , not used to reduce the normal payment.

getmore4less

Thrugelmir wrote: »

Are you sure that depositing money in the offset account reduces your monthly mortgage payment. With many offsets the interest earnt is credited to the mortgage account , not used to reduce the normal payment.

That's NOT the way Barclays/Woolwich works(I suspect most dont).

The daily interest is calculated on the net ballance there is no crediting and added to the debt monthly

The regular payment is a choice, either keep the same or reduced.

holly_hobby

Thanks GM4L was just about to post that up ....

that the capital held in the offset acc is wholly offset against the os mge debt, with mortgage interest charged only on the residual mge debt, after this adjustment has been applied.

Accordingly, any capital held in an offset account does not attract interest, due to the above format.

Holly

Thrugelmir

getmore4less wrote: »

That's NOT the way Barclays/Woolwich works(I suspect most dont).

Hence my question.

As my Hinckley and Rugby offset mortgage ( which I've had for some years) isn't like the Barclays product.

Repayments being made as normal. Every month the interest earnt on the offset account balance reduces the mortgage balance.

getmore4less

Thrugelmir wrote: »

Hence my question.

As my Hinckley and Rugby offset mortgage ( which I've had for some years) isn't like the Barclays product.

Repayments being made as normal. Every month the interest earnt on the offset account balance reduces the mortgage balance.

If they activly transfer interest into the account to reduce the ballance then that ahould be declared and taxed as income.

They say they charge interest on the net debt on the web site.

http://www.hrbs.co.uk/pages/mortgages.php?content_id=249
Offset Mortgages
An Offset Mortgage could allow you to save money and reduce the term of your mortgage by using your savings - the amount of your savings is offset against your mortgage and over the life of your mortgage you are only charged interest on the difference.

and the same with the extended page
http://www.hrbs.co.uk/pages/offset.php

The debt savings are net to calculate the interest (yet to find a lnder that does not so it this way.

Just your lender does not allow the payment to be reduced ike the more flexable lenders.

But for 100% offset this does not matter(unless you migh want to keep a long term) you just reduce the saving at the overpayment rate.

Thrugelmir

getmore4less wrote: »

If they activly transfer interest into the account to reduce the ballance then that ahould be declared and taxed as income.

The offset account balance is netted against the mortgage balance in calculating the monthly interest charge. So no tax liability arises. All legal and above board.