Confused by offset mortgage

thermos

Hi,
I have been offered an offset mortgage by Britannia.80k is on repayment and 60k is on interest only.(This is because I originally applied for this mixed repayment when I originally applied for a fixed rate mortgage with them and 60k is backed up by what my pension is currently worth.)
Since then they have recently stopped doing full interest only mortgages but will honour what we originally agreed to. Which is great.So it is not a traditional offset in the sense that it is all interest only and I don't pay interest on the amount that is in my savings account.
I can't seem to get much info on how this will work when I start making payments and start saving. They Key Facts document only illustrated how an interest only offset works. The formal offer does not go into any detail about how my monthly payments will be calculated or structured.
I can't get my head around how this will work. Do I view this as a traditional repayment mortgage and the interest only part works as a regular offset?
Or if part of it is on repayment does that mean that my monthly payments will get smaller and smaller because there is less capital to pay back? Or do my monthly payments stay the same and every month a larger and and larger percentage of my payments goes towards repayment and not interest?
When I start adding money to my linked savings account does it only knock off interest on the interest only part of the mortgage , or the whole amount including the repayment part?
Clearly been a long day out in the rain and eaten for too much so sorry if I am confused by this , I would be grateful for any experience of how a part repayment part interest only offset actually works. Just can't find much info out there to help me decide.I would call them if only there weren't so many Bank Holidays.Any advice would be appreciated.

sew_what

This exactly what we've got, so I'll try to explain!
We get a statement every three months - this shows the amount outstanding for the repayment part and interest only part separately, so you can see exactly where you're at. Then we get a record of payments we've made as credits to the account along with "offset mortgate adjustment" ie the interest on our savings. The interest charged (on the mortgage) is shown as a debit and the difference between the two is applied to your repayment sub account and reduces each time. We get a separate savings statement.
The mortgage payments stays the same every month, so in effect the interest acts as overpayments and should reduce your term eventually. I think if you ask them they will adjust the payments to keep your term at the same length.
The benefits of Offsetting are that you can save and still have access to your cash (they gave us a cashpoint card!), you don't get taxed on your interest and it doesn't count as income for tax credits etc.
Hope that explains everything - let me know if you need more information!

getmore4less

Your cofusion starts with the asumption that traditionl offsets are interest only.

they can be repayment or any combination I have a repayment.

For the monthly payment there are variosu options depends what your lender offers

Payment stays the same based on the initial calculation(ignoring the offset).
this results in overpayments if you have offset funds

Payment is calculated monthly ignoring the offset so takes account of any overpayment.

Payment is calculated monthly taking into account the offset.

I have a Barclays they offer the first and last options and produce monthly statements.


Uf you step back, it does not matterthat much how they do it at long as they do the calculations correctly.

Mine, the monthly statements show the daily interest on the net(mortgage - savings) ballance which gets added to the ballance every month(at end so show on the 1st). Any payment get taken off the ballance at the time it is made regular payment is the 16th..

nyck

The only reason i got an offset mortgage as it was the best mortgage rate at the time ,i've got nothing to offset against it.
My situation is similar to yours i had and old mortgage 50K I/O(endowment) and 50k repayment.
My new offset account showed i owe 100k the interest is £165 per month they worked out that to clear the repayment 50k in 15years i wowould have to pay an extra £240 so a total of £405 per month.I've decided to over pay a little so the interest has dropped to £135 per month over the past 3 years, but i've kept my payments the same so more and more is getting paid of the capital.
I could of saved the extra and offeset it but it would be to easy to spend the savings .

thermos

Thanks guys for the responses. Makes a bit more sense now . If I let their computers calculate everything and review things now and then it seems worthwhile even if it's a bit more to think about and plan for than a straight forward mortgage. Seems like a good incentive to save-I don't think they are giving me a cash card for my savings which is good because I would have to travel 23 miles to the nearest branch to undo my saving efforts;p

sew_what

thermos wrote: »

Seems like a good incentive to save-I don't think they are giving me a cash card for my savings which is good because I would have to travel 23 miles to the nearest branch to undo my saving efforts;p

It's a Link card so you can use it anywhere!!
Mine's hidden so I'm not tempted ;-)

robatwork

One of the scariest parts about an offset mortgage that I found when looking into them, is actually verifying that the calculations the bank make are 100% spot on. The product I was looking at was quite complex. I didn't trust myself to be able to do it properly (or them...)