Offset vs Savings vs Paying Off

irm

Hi all,

We're trying to get our heads around what to do with our mortgage.

It's an flexible offset mortgage with Santander, currently at base rate + 0.5%, with about £80,000 left to pay over 19 years. We pay about £390 a month.

We also have (just a tad under) £80,000 that is currently offset against that mortgage.

Should we:

a) leave things as they are
b) move the £80,000 to a normal savings account (eg Virgin at 2.85%)
c) use it to pay off the mortgage

If my understanding is correct, b) is probably the best option because the benefit we're getting from the offset (basically 0.99%) is way below what we could get elsewhere. I'm not completely sure if having a ton of savings is better than just having no mortgage and then saving £390 a month. That adds up obviously, but wipes out having access to a large pot of money that could also be earning interest.

My understanding is we have a great rate just now at 0.99%, yet we'd maybe be better off (because we can offset the full balance) having a mortgage with a *higher* rate. That can't be right is it?

(We do also already have other savings in ISAs, etc, with the ISAs being maxed out for 2012/2013 already).

Thanks in advance for any help!

harvey115

What the Mortgage calculation spreadsheet say (I got it from this forum):

If you move your £80,000 savings away from the offset, you are basically paying £8,920 over the term of the mortgage as interest. You can make a lot more by moving the funds into say the 2.85 interest rate account (over 19 years you would earn £34,656 on interest because the rate is Gross so less 20%).

It makes sense to keep the mortgage in this rate and only pay it off once the rate is about to go up, given that there are not too much Early Payment Charges.

I am not a mortgage advisor at all, I am only getting these numbers with simple maths.

irm

Thanks. That helps a lot