Woolwich lifetime tracker or One Account

everton09

Hi, this is my first post so go easy with me,

I have currently got a £78,777 mortgage with 21 years left and I am paying £516 pm on a woolwich 0.18% above base rate lifetime tracker works out about 5.40%. I can over pay £150 per month and, of course I want the best deal. I phoned the woolwich to see about over paying monthly, they told me there is no penalty for doing this but to "phone this number" and they will tell you how to over pay. I did this, and I really didnt get anywhere and I was past from pillar to post. So i looked at the One account, I know its 6.45%, but it seems an easier way to overpay and with everything all together it looks a great way to keep all your finances in check. By over paying £150 a month and then upping my payments 2% every year, also paying my salary into the account, I can pay it off in 11years 9 months and says its the equivilant of a rate of 3.9%. What do you all think??? would it be "easier" (over payment wise)to have a One Account at 3.9%or do I try and find out how to overpay with the woolwich and stay where I am??
Thanks in advance Mike

P.s I wont be putting savings into the account. and if anyone has any great ideas on how to pay a £78,777 mortgage off quicker with a payment of £666pm then , please help.

kelloggs36

Stay where you are and do the same with them. Put your request in writing and ask for a written response then you can know what you can do with your account.

Jono

Woolwich (Barclays) do an offset account. There are two types, one at 6% with no fees (it is available, but not advertised very much) and the other at 5.73% with £599 for fees. I'm moving from my One Account to the Woolwich offset due to the fact I can offset ALL my saving (including my ISAs), which effectively halves my mortgage.

The benefit of this allows me to keep my ISA tax free allowance each year, and get my mortgage rate as “interest” – although in reality, I’m just not paying the interest. You can also offset a Barclays current account against your mortgage.

I’m sure if you pester enough, they’ll be able to do a deal with transferring to an offset mortgage – I’m not paying any fees (including the £30+VAT electronic transfer fee that their solicitors want to charge!).

Link to the 5.73% offset: http://www.personal.barclays.co.uk/BRC1/jsp/brccontrol?site=pfs&target=_self&task=articleFWgroup&value=8704

Hope this helps.

everton09

whats the score with savings in the one account, my inlaws have said they would put £15k in the account, but obviously want it back haha, i did the calculation on the one account site and it came back as knocking another 2 years off the mortgage , so I have just phoned the one account and they said at the end of the term the £15k will be gone, whats all that about, sorry for bein dim but i dont understand the savings offset bit.

Jono

Hi everton09,

The offset is deducted from your loan amount for the purpose of calculating interest. Some figures may help... Say you got a mortgage for £100,000 and had saving of £20,000. In an offset account you only pay interest on £80,000, thus saving the interest you would normally pay the extra £20,000.

This means each month, you pay less to the bank, or if you pay the same amount (without taking the offset into account), you'll repay your mortgage faster, and therefore less interest overall.

Offset is also a very tax efficient way of saving money. For example, say we put the savings into a "reasonable" current account, which pays 4% gross. The tax man then comes along and takes his cut, effectively leaving you with 3.5% interest earned; as opposed to say 5.5% interest saved (no tax man involved either! ).

The above figure are for illustration only.

Jono

Obviously your in-laws will want the money back, but do they want any interest for lending you the money? At the end of the offset mortgage, you will still need to pay your inlaws back the £15k.

everton09

I was going to come to some agreement with the interest payments to my inlaws.Thats where i got confused with the offset thing, i thought it was just the interest made on the £15k that was used to pay/offset the interest on the mortgage. Not the capital too. So basically what your saying is the £15k would be like an overpayment but it stays in the account to offset the mortgage and when I get to the end of the term the 15k is then swallowed up ??? am i right ???? sorry for bein a pain.

MarkyMarkD

The way that One account calculate the savings in interest (and in the term of the mortgage) is incorrect.

If you say you want to offset £15k of savings, what they treat that as is a £15k immediate overpayment of the mortgage which you therefore never get back.

Obviously that reduces the term - you are giving them £15k - but it's not a fair comparison as that isn't offsetting, but overpaying.

If you pay interest to your in-laws, they are subject to tax on that and should declare it to HMRC, which is likely to rather seriously impact on the benefits of the idea from their point of view. Just because you pay interest between family members doesn't make it tax-exempt.

Jono

Don’t worry – you’re not being a pain, as with all things you need to get it right in your head before making a decision.

I think I babbled a bit and didn’t really answer your question. The One Account gives you a “facility” which is the maximum amount of money you can borrow from them. This “facility” decreased over the lifetime of the mortgage (normally 25 years).

You offset all your saving, and the inlaws £15k in the account. This decreases the interest and allows you to “save” more money in the account.

Say you’ve been really good and become fully offset at 15 years (you still got 10 years left on the “facility”). What you can do at this point is withdraw the £15k and pay back the inlaws, which will leave you with a £15k mortgage to pay back within the remaining 10 years. Does this make sense?

Yes it is an overpayment (saving you interest). The money doesn’t get swallowed up – you (unfortunately) still owe it to the inlaws – but it is offset against the mortgage until you withdraw it, or pay them back with a different £15k.

Jono

In response to MarkyMarkD post, you may decide that it's best not to pay "interest" and, indeed, the money may be a "gift".

You may wish to make a "gift" back to the inlaws at a later date - others would be able to advise you better than me on this.

He is correct with regard to the "overpayment" - it would be better if One Account also calculated the withdrawal of this money near the end of the mortgage.

everton09

Brill, I think I finally grasp it, thanks Jono. What do you think of the One account tho seems as you have one??? having everthing in one place seems great to me.