Thinking about an Offset Mortgage

princessdon

Thanks Mildred and everyone else

I guess I really need to work out how much ready access and peace of mind gives me.

I just thought that if I paid off the mortgage (and those savings are my childrens college fund too) I'd have to pay 40% in tax (bar the ISA Rates).

I thought (please tell me if I am wrong) that if I found an offset for 4% that my savings would then get me 4% (which they are not at the moment).

We do have 3 x endownments due between 7 - 14 years (as moved to capital only) but they are so far away.

I'll do more thinking and research but sincerely thank you all for the opinions you have given. Ironically myself and Mildred are thinking the same but my OH says pay it off!

mildred1978

princessdon wrote: »

I thought (please tell me if I am wrong) that if I found an offset for 4% that my savings would then get me 4% (which they are not at the moment).

If you're a higher rate tax payer then you'd need to get a gross interest rate of 5.6% on your savings to better the 4% offset.

Our mortgage was fixed for 10 years at 5.6%, but having fully offset it, it makes no difference what the interest rate is! One further consideration though is that if the bank went bust, we'd only get £85k out in cash under the banking guarantee - the rest would wipe out the remaining mortgage-£85k (ie we'd have an £85k mortgage).

I took redundancy last year and walked away with about £70k in cash. I had to find alternative accounts (ISAs and bonds etc) for most of that because there was no point putting it anywhere near the bank we offset with.

A few years back we spent about £45k having an outbuilding built. The original quote was around £32k. We had additional savings to cover it the increase, but having the flexibility to take money back out of the mortgage meant we had a safety net if we needed it.

dimbo61

Barclays have offset mortgages which allow ISA,s to be offset.( I think)
It all depends on the fees and costs to remortgage ?
We have an offset with YBS and love the flexability that it offers.
We have spent 6 years trying to pay off the mortgage asap while paying as little interest as possible

Thrugelmir

mildred1978 wrote: »

Pensions aren't ready cash though.

Though are very efficient savings vehicle for high rate tax payers.

McKneff

I couldnt wait to be mortgage free, We had savings about £300 short of the mortgage owed. I sold things, I saved things, I scrimped
for about 6 weeks just to get rid of it.

God I felt like a great weight had been lifted the moment I walked out of the buidling society after giving them a cheque and didnt owe them a penny, what a bloody great feeling that I owed nobody nowt.

So the only bills I pay now on a monthly compulsory basis is gas, electric, water, full stop. brilliant feeling. Anything else is my choice. ie tv licence, Sky etc.

mildred1978

McKneff wrote: »

So the only bills I pay now on a monthly compulsory basis is gas, electric, water, full stop. brilliant feeling. Anything else is my choice. ie tv licence, Sky etc.

Council tax?

We don't have to pay anything to our mortgage at all if we don't want to.

mildred1978

Thrugelmir wrote: »

Though are very efficient savings vehicle for high rate tax payers.

Agreed, but they are extremely long term!

Thrugelmir

mildred1978 wrote: »

Agreed, but they are extremely long term!

Allows you the option of retiring early or enjoying a comfortable retirement travelling the world.

Better to build savings on all fronts than focus on one alone.

vacheron

dimbo61 wrote: »

Barclays have offset mortgages which allow ISA,s to be offset.( I think)

Correct. You can offset their basic cash ISA which normally pays 0.1% interest, but when it's offset it effectively equals the mortgage rate. We found that useful as we had about 55K of cash ISAs between us when we took our mortgage out at 3.49%.

The additional benefit is that you can continue to add to the ISA each year to build up your tax free pot inside the offset (if there are two of you on the mortgage you can open one each).

After the mortgage is fully offset and you find you have a positive savings balance outside the offset you can do a withdrawl (or partial withdrawl) of your ISA pots from inside the offset and replace it with the taxed savings instead, leaving you paying no tax on the offset savings while enjoying a tax free return from the ISA.

getmore4less

If looking to 100% offset the rate is not so important it is low fees that make the deal worth setting up.

Barclays used to do free deal(switch and save) but last time I looked the offset setup fees were not that cheap.

3 months expences is no where near enough money to have access to 12months is much more sensible,

1-2 months instant(or CC) and the rest on less instant access but accesable(loss of interests is not a big issue).

Setting up a lifetime tracker for as long a term as possible with the intention of becomeing 100% offset makes a lot of sense if the costs are relatively low say < £1k.

A quick look at barclays(to offset ISA), not competative £1500 fee and 3.69%
probably better to keep the ISA's and look for a better offset.