Overpay on Offset Mortgage or put money in savings?

sweetdaisy

Hi, just after a little advice.

We have £84,000 outstanding on our Natwest Offset Mortgage and have 14 years and 3 months term remaining.

We have £4,500 in savings of our own which is almost 3 months of my salary and we offset this against the mortgage. I also have a savings account for each of our two young children (in my name at the moment as we are using if to offset against the mortgage - but I add to it monthly the interest it would accumulate) and this comes to £5,500.

After all outgoings and putting money into savings I have around £50-£80 a month which I could use to either increase our monthly mortgage payments or put in savings.

Just wondering which is better: to increase monthly mortgage payments by £50-£80 or put the money in savings - we don't get any interest on our savings as it is used to offset, so is our Current Account.

At the moment our Offset Statement says that we are on target to repay our mortgage 1 month early :think: even though we have £10,000 in saving accounts and we have an average Current Account balance of £1,000 a month

Ideally I would like to take 4 years off the Mortgage and I'd be 42 years old but know that I will need to overpay a lot more than £80 a month, but want to make a start . So the question is would you put more money towards paying off the mortgage or just put it in savings?

(There are no penalties for overpaying on the mortgage and I can have the money back if needed)

sweetdaisy

Anyone able to offer some advice?

rlc22

I don't know what the "right" thing to do is, but I've also got an offset mortgage and I put my overpayments into the mortgage account.

Psychologically this works best for me as I see the mortgage balance reduce and I feel like I can't drawdown any of my overpayments (although I obviously can).

getmore4less

Offset or over pay should have the same end result if the lender does it properly.

Getting overpayments back may not always be an option, offsetting preserves access to cash.

rlc22

getmore4less wrote: »

Getting overpayments back may not always be an option, offsetting preserves access to cash.

This is very true, although as none of my OPs have been significant then I've never had to worry about this part!

sweetdaisy

Thanks.

My Natwest Offset Mortgage does allow me to get back any overpayments I have made.

Sepa74

I'm confused about the question... when you say savings, do you mean 1) in a special savings account that is offsetting your mortgage, 2) in the current account which offsets your mortgage, or 3) do you mean an unrelated savings account?

If it's 1 or 2 it makes no difference, except that it will be easier to get at the cash than if you OP.

If it's 3 then you need to compare the interest rate you are earning on your savings (less tax) and the interest rate on your mortgage. If the interest rate on your mortgage is higher you are better off putting it in your offset account because it is reducing the total interest you pay on your mortgage, and thus helping you pay your mortgage off quicker.

That's the point of an offset mortgage

sweetdaisy

Sepa74 wrote: »

I'm confused about the question... when you say savings, do you mean 1) in a special savings account that is offsetting your mortgage, 2) in the current account which offsets your mortgage, or 3) do you mean an unrelated savings account?

If it's 1 or 2 it makes no difference, except that it will be easier to get at the cash than if you OP.

If it's 3 then you need to compare the interest rate you are earning on your savings (less tax) and the interest rate on your mortgage. If the interest rate on your mortgage is higher you are better off putting it in your offset account because it is reducing the total interest you pay on your mortgage, and thus helping you pay your mortgage off quicker.

That's the point of an offset mortgage

I have one current account and two saving accounts (also with Natwest) where the money in these accounts is used to offset against the mortgage - so I don't earn any interest on these accounts.

Sepa74

Hi Daisy, thanks for clarifying. Because all your savings accounts are offsetting your mortgage, it will make no difference whether you save or whether you OP - it's entirely up to you if you would like to see actual payments coming off the mortgage in each statement rather than just seeing the duration of your mortgage reduce because of the money in your offset accounts.

sweetdaisy

Sepa74 wrote: »

Hi Daisy, thanks for clarifying. Because all your savings accounts are offsetting your mortgage, it will make no difference whether you save or whether you OP - it's entirely up to you if you would like to see actual payments coming off the mortgage in each statement rather than just seeing the duration of your mortgage reduce because of the money in your offset accounts.

Thanks Sepa74

What I am having some difficulty in understanding is that we have £10,000 in savings and have an average Current Account Balance of £1,000 a month yet with the Offsetting, we have only reduced the term of the mortgage by 1 month ??? I thought that with having £10,000 in savings the term would have reduced by more?

The interest rate on the mortgage is 3.75% and we pay roughly £230 a month interest on the mortgage.

I suppose that obvioulsy we need to save a lot more for the term to drastically reduce :sad:.

System

sweetdaisy wrote: »

Thanks Sepa74

What I am having some difficulty in understanding is that we have £10,000 in savings and have an average Current Account Balance of £1,000 a month yet with the Offsetting, we have only reduced the term of the mortgage by 1 month ??? I thought that with having £10,000 in savings the term would have reduced by more?

The interest rate on the mortgage is 3.75% and we pay roughly £230 a month interest on the mortgage.

I suppose that obvioulsy we need to save a lot more for the term to drastically reduce :sad:.

Hi sweetdaisy, that is a very good question. If you are offsetting £10k, then that should reduce your term considerably UNLESS your monthly mortgage payment has been reduced to take account of the interest difference. Often a mortgage provider will do this unless you tell them. I have just remortgaged yesterday and moved onto an offset. I was told that as soon as my mortgage completes and I add savings to the offset account that I would need to call them and inform them I want to keep my mortgage payments the same.