Would I be better off with an Offset Mortgage?

TamTam72

Hello! I am just purchasing a property and plan to take out an interest-only mortgage of £215K (yikes!). I will always have at least £6500 in savings (will be considerably more when we first move in but will get spent on renovations) and our monthly paid-in income is around £3300. We are planning to overpay the mortgage by £150/mth to start with, hopefully rising later as our income increases (I go back to work). We will have very little surplus in the short-term to put into savings/ISAs etc.

I have a mortgage quote from Intelligent finance for an offset mortgage, fixed for 1 year @ 4.99% and then tracking BoE's base rate +0.5% (currently 5.75%) for remainder of term.

1. Given my circumstances, am I going to save myself money by using an offset mortgage? The IF calculator reckons 'yes' but I'm skeptical, and I have read quite a lot of advice on here that says offsets are only really good if you have 1/3 of value of mortgage in savings, which we don't.

2. Would I be better off with a traditional int-only flexible mortgage and keep my savings/current a/c where they are (currently earning 5.42% gross on my savings) making 'extra' overpayments where possible?

3. Is the offset deal I have been given, in terms of % rate, a good one? I have looked at other lenders' current rates, and there don't seem to be very many that could offer better than 5.75% tracker.

I'm sorry, that seems like an awful lot of questions but I am somewhat confused.

Thanks.

andrewbrydon

Hi

To be honest I would only consider offset if you have something in the region of 25% of the mortgage balance in savings so £53,750 in your case

Why not get a 'standard' product with a lender. EG - Bank base minus 0.27% for 2 years so 4.98% which saves you £137 per month against IF
If you can pay this off the loan that would be good.

Leave the £6500 in current arrangements and overpay as much as possible. Check the lender allows as some will limit your options

Regards

Andrew