Overpayments vs shorter term mortgage

harvey115

Basically the rate you see on the savings interest is 'GROSS' rate, so there is always the tax deductions happening. Offset suite more to people who are in the higher or additional rate tax brackets. However it also suits basic rate tax payers as well.

Saying that, to compete with current standard lending interest rates I there is not much of a huge amount of difference you can make with savings elsewhere then offsetting. Unless you are doing some Regular savings with FirstDirect, HSBC and similar deals on 8% and 6% respectively.

jackomdj

slarty wrote: »

When I looked at offset mortgages I found the rates a bit too high"......."..
I opted for a lower rate with unlimited overpayments - I got one with HSBC at 2.39%, i.e. BoE +1.89% for the lifetime of the mortgage. I think they're doing BoE + 2.49% for 1st time buyers - you'd need a pretty good offset to beat that and a lot of savings.

depends on the rate you got, we took ours out quite a few years ago, it's something like 0.75% above base rate for the term of the mortgage. It is also portable, we moved last year and were able to increase the mortgage at the same rate.

I remember someone replying to something I posted whilst still having initial chats with the bank and they said they would eat their hat if the bank didn't manage to wangle out of the terms of the original mortgage!

northerner999

To answer the original question - I took out my mortgage for 40 years, am remortgaging now five years later for 35 years.

In reality all it means is my minimum payment is as low as possible, and I have limits on overpayments during an initial fix (over the next five years hopefully).

But it also means when that initial fix is no longer in place, I can overpay as much as I want without the pressure of being chased up if I don't have the spare cash or feel my money is better in a savings account. Or if my circumstances change. Or if I just fancy a holiday!

So if I was in the same situation as the OP, I would take it over the longest term possible and overpay only as much as you are allowed without charges in the initial deal (this is usually still a substantial chunk). If you have any extra cash put it in the best savings accounts and when you are able to overpay more, if you want to, make a big payment.

_Ed

Thanks for all the replies. After a lot of reading up and getting familiar with lots of different calculators, it seems the ideal might be a cheap 2yr deal to allow us to build back up the savings pot (which will mostly go on the deposit), and then switch to an offset after that.

Comparing fixed to offsets is a real pain though!
Cheers, Ed

getmore4less

When it comes to flexability there is another option that not many utilize.

Split the mortgage, keep part of it fully flexable.

People often end up like this when they port and take on aditional borrowing but the option is there with some lenders when setting up.

Issue might be fees making it less atractive.

only thing is AIUI few if anyl ender will mix an offset with other lending options.

PHickman

Why not find your first house for £200K and have no mortgage?

To answer your question... there is no difference in having a 5 year mortgage and paying the regular massive monthly payment, or having a 40 year mortgage and paying the regular minimal monthly payment and making massive overpayments each month (assuming no fees) that will pay off the mortgage in 5 years. I would hope you understand this after your research. The only difference is the monthly financial commitment you are signing into.

You should be looking to make your mandatory financial commitments as minimal as possible, so when you can afford it you can massively overpay (assuming no fees) and should the worst case happen your monthly commitment is minimal (and you have a stash of overpayments to fall-back on so you can take payment 'holidays' and have a 'rainy-day fund').

Note; A 2-year discount will have a hefty mortgage fee, as lenders know most savvy customers will jump to another lender once the redemption period is up.