saving in offset or overpaying?

cfb

I would appreciate some advice on what is best to do with extra money I have.

I currently have a mortgage of about £83,000 on a flat worth about £119000. I am on a lifetime tracker at 1% above the baserate, with offset facility. I have been overpaying by between £100 and £200 for the last few years, and currently have 18 years left on it. I've currently only got about £3000 in the offset.

I would like to move to a bigger house (mainly because I want a garden, otherwise very happy with the flat), which I could currently afford, though it would stretch my budget considerably and leave me vulnerable if I were to lose my job. I've just about persuaded myself to put moving on hold until I have a bigger deposit and therefore can get a better deal on a mortgage.

I can save or overpay at least £1000 each month, at my current income and interest rate.

So would I be better to be overpaying the mortgage whilst the interest rates are so low, or putting most of the money in offset account and/or ISA.

Looking at the overpayment calculator, I could potentially pay of my mortgage within about 5 years, which is very tempting. If I put my money in the offset account rather than in overpayments, would it still be able to be repaid as quickly?

or would I be better saving as much as I can, as my mortgage deal is transportable, so could keep some money on that mortgage at a low rate, and add to my deposit with savings?

Any advice is appreciated! Thanks.

dimbo61

Each pound you pay off the mortgage saves you 1.5% tax free!
Thats 0.5% Bank of england base rate plus 1% if I am reading your post right ?
Now you can get 3% tax free in a Cash ISA at the moment and the more you pay off your current mortgage the less you owe BUT the less you can transfer when you ( Hopefully ) port the mortgage to your next home.
Now I dont know how long you have had the mortgage or your income but the mortgage and housing market have changed big style in the last few years and your lender would be very happy if you paid off your current mortgage ( as its making very little if any money at that rate )
I would build up ISA savings first and then pay into the offset as much as possible every month

stark_source

dimbo61 wrote: »

Each pound you pay off the mortgage saves you 1.5% tax free!
Thats 0.5% Bank of england base rate plus 1% if I am reading your post right ?
Now you can get 3% tax free in a Cash ISA at the moment and the more you pay off your current mortgage the less you owe BUT the less you can transfer when you ( Hopefully ) port the mortgage to your next home.
Now I dont know how long you have had the mortgage or your income but the mortgage and housing market have changed big style in the last few years and your lender would be very happy if you paid off your current mortgage ( as its making very little if any money at that rate )
I would build up ISA savings first and then pay into the offset as much as possible every month

quick question, if I may: What's an offset?

Thrugelmir

stark_source wrote: »

quick question, if I may: What's an offset?

A mortgage account which has an attached savings account. Rather than being paid interest on the savings account. Interest earnt is automatically credited to the mortgage account. The interest rate is the same as the mortgage on the offset. Also the interest is effectively tax free.

These are just the basics.

cfb

Thanks dimbo61.
Yes, that's right, 1.5%- I've been in the property for 8 years now, and was lucky enough to remortgage at the right time about 6 years ago, when my property was valued at more than I bought it for and more than its worth now, but meaning at the time I had a higher loan-to-value ratio so benefitted from a good rate.
It makes sense that at the moment paying off the mortgage is benefitting the lender not me - I guess I was just thinking how nice it would be not to have a mortgage, but given I'm likely to move anyway I'd just end up with another soon, at a much higher rate. I'll do some organising of my money and get this years ISA filled up before its too late, then after that put anything into the offset.

dimbo61

You need to be good with money ?
Far too many people see £4/5K in ISA,s as a reason to buy a new car or that holiday to florida.
I have my 6 months of income ( Just in case) and overpay the mortgage each month with any spare money but my mortgage rate is 3.75% !!!

james3333

Thrugelmir wrote: »

A mortgage account which has an attached savings account. Rather than being paid interest on the savings account. Interest earnt is automatically credited to the mortgage account. The interest rate is the same as the mortgage on the offset. Also the interest is effectively tax free.

These are just the basics.

MMMmmm....Interesting...
i have 10k saved in an ISA at 3%
i have 70k outstanding on my mortgage at 4.39%
would a offset be any good for me?

Morgage_Confused

yes offset would benefit you but the offset rates are not as good as normal mortgages.

what would also benefit is to take out the cash from the isa and blow it on the mortgage. it makes perfect financial sense but there goes your contingancy fund. with an offset you can always get your money out again.

Dubito_ergo_sum

check the Ts&Cs of your mortgage... if your mortgage allows it, you could use the 10k to overpay and then take a payment holiday later on in lieu in effect borrowing it back, might be worth looking into...

james3333

ah, thanks guys.
i like having the 10k for 'contingency' nice to know i have some cash if owt goes wrong!
good advice tho and worth me thinking about.:money:

OverlandLandy

IMHO
Keep 'saving' in the offset - you never know when you might need it (a new property- using this money is an easier and cheaper option than getting another loan).

Be very strict with yourself. If you want to have some 'savings that you can dip into if you require'. Why not set up a small pot - ie save £900 in the offset and a further £100 in a 'holiday/car/rainy day' pot?

All the best with it.