Overpay on Offset Mortgage or put money in savings?

HappyMJ

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:.

I would ignore the estimate. It's telling you the interest that is being offset will save you a month in total to repay the mortgage but at that time when the mortgage account is paid off you will still have the £10,000 in the offset account and no mortgage. Which would be rather pointless as the interest offset is earning nothing.

dimbo61

I would build up your savings in the offset account
3 months of income is really not enough so build up to six months or more ( upto £16K)
Having that sort of money gives you much more security
Say you need a new ( secondhand ) car and the dealer wants to offer you 8/9/10% APR on the loan
drive a hard bargain and pay cash from your savings

Sepa74

Hi Daisy, I was dissapointed too at how little the offset seemed to be doing, especially at first. but if you think about it, all it is saving you is the interest on the £10,000, but of course that adds up enormously over time.

So if your mortgage is 3%, then your £10,000 will save you £300 every year in interest, which is then paid off the capital... but of course one months payment is probably 2 - 3 times that.

Now that the savings in my offset are building up, I'm starting to see the difference, although it has been frustratingly slow!

sweetdaisy

I am going to phone Natwest tomorrow and speak to them about the mortgage. My statemement a few weeks ago said that I was on target to reduce the term of the mortgage by 1 month, but it also says on the statement:

"this estimate does not take into account the effect of any future offsetting. By offsetting any money in an Offset current account and/or Offset saving account, you could repay your mortgage even earlier". :think:

Perhaps it's me just being 'stupid' but if the estimate has not taken into account of what I am offsetting (over £10,000), surely I would have reduced the term by more than 1 month?? As my statment says that since offsetting we have saved a total of £1,288.

I am getting so confused about it all and wondering if this is the best mortgage for me?

sweetdaisy

I contacted Natwest Offset Mortgage team today and I now understand why my statement only says that I have reduced the term by 1 month .

Based on the interest which is being Offset through Overpayments the mortgage term has been reduced by 1 month. (I have now increased Overpayment by £59 a month from 16th November).

However . . . including total money being Offset in Current and Savings Accounts, I have reduced the term of the mortgage by 29 months :dance:. So I am over half way to reach my target of paying off the mortgage 4 years earlier.

This has really spurred me on now to keep the overpayment at £59 a month (as I can affford to do this at present) and to increase my savings as I now aim to have 6 months salary in my savings account. And obviolusy the more I save and Offset the quicker the term of the mortagage will reduce .

armour

Congratulations SD.
Aren't offset mortgages brilliant. If you want you could google "karls mortgage calculator" it's an easy to use tool which allows you to predict whar future overpayments/savings could save you.
When you think that this is your money, which, given a normal repayment mortgage, the bank would screw out of you it seems even better.
As with other posters, money into the savings vehicle is preferable to overpayments, purely for ease of withdrawal if needed.

Sepa74

I'm glad you got it sorted out in your head and are happy that your mortgage is working for you. I think they have to be cautious about calculating the effect of the money in your offset savings accounts because of course you can withdraw it any time - there is no guarantee it will be there for the full length of the mortgage, unlike overpayments.

mags32

Hi there

I've been reading the comments in this thread and not all above agrees with that I've recently learnt from my NatWest mortgage advisor... I.e. I was told that lump sum reduction is better than paying the same mount of money into one of the saving accounts linked to the offset mortgage as this reduces something called compound interest.

Ask them to run a simulation for you and you will see that the same amount of money works for you much more efficiently (e.g. shortens the term of your mortgage considerably) if you make lump sum reduction (instead of offsetting). They say that you still can request draw-dawn at any time and it should not take any longer than 5 working days.

Anybody here came across this? Did they tell you the same? (I did get contradicting info from the bank (?!) but was assured in the end that the above is correct...).

BTW - anybody knows why the facility (for draw-down) apparently decreases every year? So if they agreed with you 100K you will not be able to draw dawn all 100K the next year but this sum less some 1.5K (or something close to this figure).

Thanks in advance for your comments

m

sweetdaisy

mags32 wrote: »

I was told that lump sum reduction is better than paying the same mount of money into one of the saving accounts linked to the offset mortgage as this reduces something called compound interest.

Hi mags32

Thanks - this sounds interesting. I thought that it didn't make a difference if the extra money was paid directly to the mortgage as an Overpayment or if you just 'save' the OP money in the offset savings account.

sweetdaisy

mags32 wrote: »

Hi there

I've been reading the comments in this thread and not all above agrees with that I've recently learnt from my NatWest mortgage advisor... I.e. I was told that lump sum reduction is better than paying the same mount of money into one of the saving accounts linked to the offset mortgage as this reduces something called compound interest.

Ask them to run a simulation for you and you will see that the same amount of money works for you much more efficiently (e.g. shortens the term of your mortgage considerably) if you make lump sum reduction (instead of offsetting). They say that you still can request draw-dawn at any time and it should not take any longer than 5 working days.

Anybody here came across this? Did they tell you the same? (I did get contradicting info from the bank (?!) but was assured in the end that the above is correct...).

BTW - anybody knows why the facility (for draw-down) apparently decreases every year? So if they agreed with you 100K you will not be able to draw dawn all 100K the next year but this sum less some 1.5K (or something close to this figure).

Thanks in advance for your comments

m

Hi :j

mags32 has asked for advice on an old thread of mine and I was wondering if anyone is able to answer any of the questions - as I am not knowledgeable enough!