Offset mortgage or payoff?

Moneysaver69_2

Hi,

I have a 25k mortgage and 25k savings and I'm looking to get a barclays offset mortagage. Am I right in that if I do this I can make my mortgage technically interest free? I want to basically carry on over paying but without paying interest and just paying my capital off.

I don't want to pay it off as it took me a long time to build up my savings and I don't want to go to zero.

Can you please advise the best thing to do?

Meeper

Yes, if you have a mortgage of £25k and put £25k into the offset savings account, you can continue to pay off the £25k capital without interest being charged.

Gromitt

No, the monthly mortgage payment is calculated as 1/12th of the annual interest plus any capital repayment due (i.e. each ‘month’ is 30.4 days) whereas the offset benefit is based on the actual number of days in the calendar month. For example, the mortgage payment for March would be for 30.4 days less the offset benefit earned during the 28 days of February and there would, therefore, be a small amount of interest to pay.

Wh05apk

Gromitt wrote: »

No, the monthly mortgage payment is calculated as 1/12th of the annual interest plus any capital repayment due (i.e. each ‘month’ is 30.4 days) whereas the offset benefit is based on the actual number of days in the calendar month. For example, the mortgage payment for March would be for 30.4 days less the offset benefit earned during the 28 days of February and there would, therefore, be a small amount of interest to pay.

Technically, the mortgage interest is charged in advance, as even Woolwich have the ability to "guess" the number of days in the month, whereas your savings interest is credited in advance, so technically where the previous month has less days than the current month you could incur a small charge, whereas the following month will accrue a small surplus.

If your savings match your mortgage, I would recommend taking the mortgage on an interest only basis, as they will not pay you interest on any amount over the mortgage balance, if on a repayment basis you will need to reduce your savings monthly as you pay the mortgage down, use the additional to build up savings elsewhere which will then accrue interest.

Finally why Woolwich, I think their lowest fee is £749, which represents 3% charge in effect, either find another offset, or take a fee free deal and put your savings elsewhere if you want to hold them, or pay the mortgage off?

getmore4less

Moneysaver69 wrote: »

Hi,

I have a 25k mortgage and 25k savings and I'm looking to get a barclays offset mortagage. Am I right in that if I do this I can make my mortgage technically interest free? I want to basically carry on over paying but without paying interest and just paying my capital off.

I don't want to pay it off as it took me a long time to build up my savings and I don't want to go to zero.

Can you please advise the best thing to do?

Yes thats the way it works, you just have to move the savings as the debt reduces because there is no interest on offset accounts.

It might be posibble to make the payments rm the mortgage current account so the process is automatic, and you just start new savings elswhere.

With barclays you can offset ISA so you could build up some ISA savings if not allready doing that.

Check the fees, Barclays have not been that cheap recently.

....................

Can't believe the stuff some people just make up.

With the barclays/woolwich the interest is calculated daily on the net ballance if this is zero there is is no interest for that day.

no 1/12, no guessing the number of days, technical in advance arrears, no calculations of mortgage interest and saving interest across months.

Just net ballance on each day.

Once a month this daily interest is added to the mortgage ballance(end/start of month so the ballance increases on the 1st of the month).

So interest accrues daily and compounds monthly

Any payments just come off the ballance at the tme they are paid.

Wh05apk

getmore4less wrote: »

Yes thats the way it works, you just have to move the savings as the debt reduces because there is no interest on offset accounts.

It might be posibble to make the payments rm the mortgage current account so the process is automatic, and you just start new savings elswhere.

With barclays you can offset ISA so you could build up some ISA savings if not allready doing that.

Check the fees, Barclays have not been that cheap recently.

....................

Can't believe the stuff some people just make up.

With the barclays/woolwich the interest is calculated daily on the net ballance if this is zero there is is no interest for that day.

no 1/12, no guessing the number of days, technical in advance arrears, no calculations of mortgage interest and saving interest across months.

Just net ballance on each day.

Once a month this daily interest is added to the mortgage ballance(end/start of month so the ballance increases on the 1st of the month).

So interest accrues daily and compounds monthly

Any payments just come off the ballance at the tme they are paid.

Another so called "expert" !!!

Woolwich charge interest in advance, and credit in arrears, from their site:

"What will I pay in the month after
my mortgage completes?
In the irst full month after your mortgage
completes, the payment you will have to make
is a full contractual monthly payment (as stated
on your mortgage illustration) plus any mortgage
interest carried forward from the month when
your mortgage completed.
Your irst monthly payment will be reduced by the
Offset beneit you have earned by the end of the
month when your mortgage completes. This is
because each monthly payment is reduced by
the amount of Offset beneit that you have earned
in the previous month.
What will I pay each month thereafter?
Each of the following monthly payments will be
reduced by the Offset beneit earned during the
previous month. If the total balance held in your
offset accounts luctuates during the month, this
will be relected in the following month’s payment."


Unless they charge interest in arrears how could they possibly calculate the "net" balance for the current month?

getmore4less

Wh05apk wrote: »

Another so called "expert" !!!

Woolwich charge interest in advance, and credit in arrears, from their site:

"What will I pay in the month after
my mortgage completes?
In the irst full month after your mortgage
completes, the payment you will have to make
is a full contractual monthly payment (as stated
on your mortgage illustration) plus any mortgage
interest carried forward from the month when
your mortgage completed.
Your irst monthly payment will be reduced by the
Offset beneit you have earned by the end of the
month when your mortgage completes. This is
because each monthly payment is reduced by
the amount of Offset beneit that you have earned
in the previous month.
What will I pay each month thereafter?
Each of the following monthly payments will be
reduced by the Offset beneit earned during the
previous month. If the total balance held in your
offset accounts luctuates during the month, this
will be relected in the following month’s payment."


Unless they charge interest in arrears how could they possibly calculate the "net" balance for the current month?

That describes how they calculate(estimate) the payment if you choose the variable payment options.

Just a change of the future payment to reflect any over/under payment due to changes to the offset during the previous months to keep the mortgage on track to be paid off at end of term if repayment.

It has nothing to do with how the actual interest is charged that is a conection you have usumed/interprited that does not exist.

A reduced payment is not the same as a credit.

The reality is that real interest is calculated daily on the net ballance across the accounts and added at the end of the month, with any payments just coming of the ballance at the time they are made.

I have a Barclays/Woolwich offset and that is what the monthly statements show. I will have to dig out the T&C's for the actual wording on interest calculations.

There are a few ways they can make the guess for the next payment for those on variable.
Will have a look and see if that is in the T&C I suspect not.

They could recompute evey month to end of term to get the new payment, they do this end of year anyway so have the basic software to do it.

or they could just adjust for the reduced interest charged that will be close enough the end of year calculation will fix the discrepancy.

Wh05apk

I used to work for Barclays, so know how the offset works, I have spent many hours explaining customers statements.

Not sure what you are saying in your previous message, it seems rather garbled?

getmore4less

The key point is that interest is calculated on the daily net ballance and added at end of month.

It is what the monthly statement show with the daily itemised data and summary

You are saying this is incorrect!

Wh05apk

getmore4less wrote: »

The key point is that interest is calculated on the daily net ballance and added at end of month.

It is what the monthly statement show with the daily itemised data and summary

You are saying this is incorrect!

Yes, the payment you will pay in November will be for the debit interest for November so lets say 3% interest on £100,000 x 30/365 = £246.58, assuming you offset with £100,000 then you will receive credit interest of 3% x 31/365 for October so £254.80, so your balance would reduce as you have effectively overpaid. In January your payments will be dr int : 31/365 = £254.80 and cr int for dec £254.80 so again nothing, but going forward to March your dr int will be £254.80 with cr int for Feb of only £230.14 so you will make a payment. Ultimately when you redeem your mortgage they will effectively "owe" you credit interest.

getmore4less

Wh05apk wrote: »

Yes, the payment you will pay in November will be for the debit interest for November so lets say 3% interest on £100,000 x 30/365 = £246.58, assuming you offset with £100,000 then you will receive credit interest of 3% x 31/365 for October so £254.80, so your balance would reduce as you have effectively overpaid. In January your payments will be dr int : 31/365 = £254.80 and cr int for dec £254.80 so again nothing, but going forward to March your dr int will be £254.80 with cr int for Feb of only £230.14 so you will make a payment. Ultimately when you redeem your mortgage they will effectively "owe" you credit interest.

The above is just about how you calculate the payment which is not what I asked.

The payment is not relevent to the calculation of interest on the debt which as far as I can see is done daily and added monthly.

If its not done like that how is it done?