Offset Mortgage - linking accounts

harvey115

I am getting some confusions regarding the Savings Accounts linkage with Offset Mortgages. I was wondering if someone can give me an idea if I understand this Offsetting vehicle correctly.

For Example:

5 years Mortgage £X
ISA - Fully subscribe to ISA allowance every year for 5 years ~ £5K * 5 = £25K
Savings Account - Pay anything further to Offset further the mortgage

So after 5 Years say the mortgage is completed

- Will I have the £25K in my ISA balance? which I can then use further in ISA?

Woolwich says:
Keep instant access to your savings and your historical tax-free ISA allowances

So I was a bit confused with the wording...

dimbo61

You wont earn any interest on your Cash ISA,s while they offset the mortgage! but if you can put the full allowance each year into an ISA you will still have over £25K in 5 years.
Now any money you can save into the offset account save you your " mortgage interest rate" TAX FREE
PS I love offset mortgages and have been working very hard to
1 pay off our large mortgage ASAP
2 pay as little interest as possible to our lender :-)
3 Clear the "debt of death" as quickly as we can to be mortgage free long before our retirement

getmore4less

offset funds won't pay off the mortgage.

With Woolwich/BArclays you can offset the ISA accounts.

If you want to keep the ISA you must also save the equivilent amount to pay off the mortgage.

One option is to take out the new cash ISA each year(if the ISA rate is higher than the mortgage don't offset till the bonus runds out) then offset.

also offset excess savings.

once 100% offset start new ISAs not offset and start to migrate the ISA offset money into better paying ISA's using other savings to stay at 100%.

eventualy you have 100% offet and X years of ISA allowance.

the down side is you lose the interest on the offset ISA and the future tax free interest on the interest.

The calculations to see if it is worth offsetting is a bit tedious.

harvey115

Thanks Guys

I am also a fan of Offsetting mortgages mainly because I am taxed at higher rate and ISA's aren't paying more then many good mortgages I might be able to get.

I have the Mortgage Calculations excel spreadsheet I got from this forum that has a very good Offsetting system in it as well.

Its quite good in terms of showing during the period of mortgage, once my savings reach the value of the mortgage capital (at that point) I will start moving further savings out to other providers to start earning interest separately on them. As correctly noted by getmore4less only saving less or equal amount owned in an offset account should be saved, so that interest on extra savings can be earned.

The downside of not getting interest on savings in an offset is actually an upside because:
- You save tax cuts 20% for basic rate and 40% for higher rate in normal savings
- Interest on savings and even on ISA's are currently and possibly for the foreseeable future would be far less then the mortgage interest rate.

Thanks for the explanation.

getmore4less

harvey115 wrote: »

- Interest on savings and even on ISA's are currently and possibly for the foreseeable future would be far less then the mortgage interest rate.

With a mortgage(mine) at 1.45% or less there are places to make savings a better option.

Handy think with the barclays product if you overpay the reserve grows so you can get the money back at the mortgage rate.

handy if having saving would impact benifits.

harvey115

Yes, well spotted.