Offset Mortgage

Janierog

Just to clarify - if we took the loan out for longer we would have more savings because less mortgage payments and this would be financially beneficial in terms of paying mortgage off quicker because bigger overpayments and savings thus cheaper - or no difference ?


Ducks as I wait for a response !

ViolaLass

Janierog wrote: »

Just to clarify - if we took the loan out for longer we would have more savings because less mortgage payments and this would be financially beneficial in terms of paying mortgage off quicker because bigger overpayments and savings thus cheaper - or no difference ?


Ducks as I wait for a response !

Makes no difference as the amount you're paying each month is the same. Term only affects the amount you HAVE to pay each month.

vacheron

Janierog wrote: »

Just to clarify - if we took the loan out for longer we would have more savings because less mortgage payments and this would be financially beneficial in terms of paying mortgage off quicker because bigger overpayments and savings thus cheaper - or no difference ?


Ducks as I wait for a response !

Here is an example to highlight the usefulness of a smaller deposit and longer term:
House = 370K, Savings = 200K

Option 1: Borrow 170K with your full cash deposit @4% over 10 years:

• 200K Deposit
• Loan to value: 45%
• Minimum montly repayment to mortgage lender: £1750
• Savings for emergency: £0

Option 2 Borrow maximum loan to value allowed, say 296K (80%) @4% over 25 Years:

• 74K deposit
• Loan to value: 80%
• Minimum montly repayment to mortgage lender: £1580
• Offset savings available for emergency: £126K

As you can see a 25 year term will result in a lower mandatory monthly repayment even though you are borrowing far more. You can then immediately offset your remaining savings of £126K to reduce your monthly interest payment by a further £360 to around £1200 per month.

Providing you continue to save the difference between option 2 and the £1750 PM of option 1 into your offset savings account each month you won't pay a penny more in interest for this facility.

Janierog

Many thanks for advice