Offset mortgage or payoff?

vacheron

Wh05apk wrote: »

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?

I agree about the high fees, however, if you do want to use Barclays/Woolwich and get best value for money out of the fee then do what I did.... Instead of applying for what you need, apply for what you can get.

For example, if your house is worth 100K and you want to borrow 25K, (25% LTV), instead consider borrowing the max they will allow (say 70% LTV = 70K) over the longest time they allow.

Put this extra 45K immediately into your offset account and use it to repay the first 45K's worth of repayments (which will be capital only as your savings will make you immediately 100% offset) your savings will be reducing, but the mortgage will be reducing by the same amount as the repayments will be 100% capital = zero net loss/gain.

This means that you can use the banks own money to repay your mortgage for about the first 15-20 years of a 25 year mortgage. It also means that you then have access to an 70K totally liquid emergency fund should you ever need it, though obviously this will diminish with each monthly repayment.

This could be well worth considering providing you are disciplined, especially as the arrangement fee will be exactly the same in both cases!

Wh05apk

getmore4less wrote: »

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?

TBH I am not sure what you asked, I thought you were just incorrectly accusing people of posting inaccurate information by saying "Can't believe the stuff some people just make up" and thought I should correct you with FACT.

I think the point of this thread has been lost now, and should be finished/closed.

getmore4less

Wh05apk wrote: »

TBH I am not sure what you asked, I thought you were just incorrectly accusing people of posting inaccurate information by saying "Can't believe the stuff some people just make up" and thought I should correct you with FACT.

I think the point of this thread has been lost now, and should be finished/closed.

I believe you posted incorrect information.

you said

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.

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

Followed by a quote from the barclays site that does not say that.


What Barclays tell me on on my monthly offset mortgage statement that shows daily ballance and interest is that interest is calculated on the daily net ballance and added monthly at the end.

If that is not correct please explain how it is done.

getmore4less

vacheron wrote: »

I agree about the high fees, however, if you do want to use Barclays/Woolwich and get best value for money out of the fee then do what I did.... Instead of applying for what you need, apply for what you can get.

For example, if your house is worth 100K and you want to borrow 25K, (25% LTV), instead consider borrowing the max they will allow (say 70% LTV = 70K) over the longest time they allow.

Put this extra 45K immediately into your offset account and use it to repay the first 45K's worth of repayments (which will be capital only as your savings will make you immediately 100% offset) your savings will be reducing, but the mortgage will be reducing by the same amount as the repayments will be 100% capital = zero net loss/gain.

This means that you can use the banks own money to repay your mortgage for about the first 15-20 years of a 25 year mortgage. It also means that you then have access to an 70K totally liquid emergency fund should you ever need it, though obviously this will diminish with each monthly repayment.

This could be well worth considering providing you are disciplined, especially as the arrangement fee will be exactly the same in both cases!

This won't save any money over getting a £25k mortgage.

It does give increased liquidity which may be atractive.

vacheron

getmore4less wrote: »

This won't save any money over getting a £25k mortgage.

It does give increased liquidity which may be atractive.

I didn't say that it would save money, it was just a way that the OP could get more "bang per buck" from their fixed price application fee.

It could however "save" money in the future by effectively providing equity release at the mortgage rate for free now rather than needing to re-apply later on or pay higher interest on future unsecured loans etc.

Moneysaver69_2

Guys, I think some of your are going off track! If my mortgage and savings are equal in a repayment offset then I don't pay interest. I understand I won't get interest on the savings as the mortgage gets reduced. Can anyone see any other issue.

Vacheron - good idea about using the banks money!!!

Gromitt

As stated previously, some months there will be a small amount to pay. Its not as simple as 100% offset = interest free mortgage. This is even explained on Barclays own website.

But, not having to spend all your savings is a bonus and give you emergency cash flow, so its well worth doing.

Moneysaver69_2

Now I'm confused!!

getmore4less

Ok I think I have worked out what's going on
Barclays own FAQ is also a bit misleading


The mortgage daily ballance accrues daily interest which is added to the mortgage account monthly at end of month

Any payments are deducted from the account at time of payment.
For offsets the standard DD payment is 16th.

The standard monthly payment is calculated based on 12 equal payments(because people like it that way) and the first monthly payment will always be this amount.

This calculated payment consits of the approximate interest due for a month + if repayment a capital payment as well.
(As with all daily interest mortgages this will never be the exact amount needed for the months real interest but it gets sorted at end of year when the annual recalculation is done )

Along side the actual interest is a what Barclays calls a "credit" for the interest saved that day because of offset funds, this also acrues monthly.

At the end of the month this notional credit is used to reduce the next payment.

It is never a real credit but is just an overpayment from the first payment due to the interest charged being less that that was estimated and paid

This overpayment means you can pay less next month, repeat

The issue for interest only is that even when 100% offset this method of calculating the reduction may not be sufficient to make every payment zero.(I guess when it is more the payment is just zero and not given as a refund).

This is not an issue for repayment since the payment will always be more than any interest due anyway

The result is that the mortgage ballance has an permanent overpayment to reflect the current offset ballance running a payment behind.

The way Barclays runs its offset all payments come of the mortgage ballance so are effectivly are all capital payments, interest is added to the ballance once a month independantly of the payment.

The issue is the way mortgage payments are estimated which are only an approximation of what will be needed to meet the interest( and capital if on repayment).

Twiddy

Moneysaver69 wrote: »

Now I'm confused!!

Me too!!