Offset mortgage,is this right?

Tony69

Im confused. I am taking out an Offset Mortgage with Santander interest only. But according to the mortgage offer and terms and conditions booklet of the mortgage if I pay extra money into my savings pot the monthly payment doesn't reduce which I was under the impression that it would. The only way the monthly payments reduce is if I pay extra into the mortgage account.

Could somebody please clarify if this is correct.

Thrugelmir

Often with offset accounts the monthly repayments are only recalculated after an interest rate change.

holly_hobby

Are you sure ?

The fundamentals of an offset mortgage, are that the amount of capital held in the connected account, directly reduces the amount of mortgage used for interest calculation purposes.

Have a re-read of the T&Cs just to ensure you haven't misunderstood their terms.

Hope this helps

Holly

Tony69

holly_hobby wrote: »

Are you sure ?

The fundamentals of an offset mortgage, are that the amount of capital held in the connected account, directly reduces the amount of mortgage used for interest calculation purposes.

Have a re-read of the T&Cs just to ensure you haven't misunderstood their terms.

Hope this helps

Holly

100% SURE. I also understood that money held in the savings account would reduce the monthly payment.

Just to quote 1 part of the T&C "unless you ask us to transfer some or all of your savings to the mortgage account under condition 17.9,your savings will not reduce the mortgage balance or affect the amount of the monthly payments". I also asked my mortgage advisor about this and he was also puzzled at first, but he spoke to his boss and was told it was because it was an interest only account but I can't help feeling fobbed off about the whole thing.

firesidemaid

That makes it sound like an offset that doesn't offset?!

holly_hobby

Then it is not an offset mortgage in the traditional sense - if they are not offsetting the connected savings capital against the mge debt for interest calc purposes (regardless of repayment method), you should be receiving interest on them instead.

If you have not yet effected the mge, and you do want a traditional offset, get your broker to shop around to achieve what you want. (although the fact he has accepted their interpretation of an offset, and not already advised a re-think is a little baffling to me !)

Hope this helps

Holly

anselld

But it must still reduce the interest, otherwise it is not an offset.
Presumably monthly payment is fixed but actual interest varies according to net offset balance.

Thrugelmir

Tony69 wrote: »

100% SURE. I also understood that money held in the savings account would reduce the monthly payment.

Just to quote 1 part of the T&C "unless you ask us to transfer some or all of your savings to the mortgage account under condition 17.9,your savings will not reduce the mortgage balance or affect the amount of the monthly payments". I also asked my mortgage advisor about this and he was also puzzled at first, but he spoke to his boss and was told it was because it was an interest only account but I can't help feeling fobbed off about the whole thing.

See my previous comment.

A lender is not going to revise a monthly payment every month. The cost of implementing a system would be very time consuming and expensive to administer.

Whilst your repayments will remain the same. The interest credited from the offset account will reduce your mortgage balance. Resulting in a lower mortgage balance and a lower interest charge. In effect shortening the term of the mortgage.

mildred1978

Thrugelmir wrote: »

See my previous comment.

A lender is not going to revise a monthly payment every month. The cost of implementing a system would be very time consuming and expensive to administer.

Whilst your repayments will remain the same. The interest credited from the offset account will reduce your mortgage balance. Resulting in a lower mortgage balance and a lower interest charge. In effect shortening the term of the mortgage.

I have a fully offset mortgage, so the bank is charging zero interest. My monthly payment, however, hasn't changed because I haven't asked them to (so I'm paying off capital every month).

holly_hobby

Interest isn't credited to any offset linked account - thats the trade off for the lender reducing the amount of mge used for interest calc purposes (which is more advantageous unless you aren't liable for income tax i.e income below PA).

I've googled Santanders offset deals, and copied their leading page for info, which doesn't seem to match the t&cs you've been provided with ... have a check ... (here is also the direct link http://products.santander.co.uk/mortgages/flexibleoffsetmortgages.html ) ...

"Flexible Offset Mortgages
Take control with a Flexible Offset Mortgage



Our Flexible Offset Mortgages gives you added freedom – and a great long-term deal. It allows you to offset your savings against your mortgage. So the more money there is in your savings pot, the less interest you’ll be charged, allowing you to pay off your mortgage earlier. Find out how much you could borrow with our online mortgage calculator or view our current Flexible Mortgages deals.

• Why choose a Flexible Offset Mortgage?
• How much could you borrow?
• Other ways to apply

Flexible deals


Why choose a Flexible Offset Mortgage?

• Freedom - overpay when you choose so you pay less interest over the mortgage term, then underpay or take a payment holiday whenever you need
• Savings - offset your savings against your mortgage and cut the interest you pay over the term of your mortgage
• Reduced payments – our Flexible Offset Mortgages track the Bank of England base rate so you benefit from lower monthly repayments if this rate reduces, but remember it may also go up
• Long term - added flexibility means you needn’t look for a new deal every few years
• Extra borrowing – you could borrow additional money in the future, at the same rate as your mortgage up to an agreed limit
• Benefit packages - available on some of our Flexible Offset Mortgages, these include a free standard valuation, and standard legal fees paid for remortgaging or £250 cashback if you’re moving home. If you pay off your mortgage within the first two years you will need to repay the £250 cashback or a maximum of £200 for the remortgage legal work.
• Risk - you need to be comfortable with repayments that could rise as well as fall

Mortgage repayment options


Hope this helps

Holly

dimbo61

I have an offset mortgage and my payments are recalculated at the end of the year taking into account how much I have had in the offset accounts during the previous 12 months.
I then have the choice of having my monthly payment go down or keeping the payment the same and reducing the term. ( repayment mortgage)