Offset question

J_C1

Hi all

First post so be gentle.

3 year fixed rate with Abbey comming to an end and looking to remortgage.

Here is our situation:

House value 265K
Mortgage 132k on repayment 22 years remaining.

We are sending our son to a private school in September. The fees we estimate to be appprox 200k over the term of his education.

Mother in law has "gifted" us 170k towards this purpose.

I am having a blonde week, (no offence to other blonds!) and cannot get through my head how offset mortgages work, and wether what I am about to suggest is a good idea.

I am thinking that I take out an offset mortage for the 132k, offset it with the "gift" and put our mortgage payments into a high interest savings account along with 38k. Reasoning is that we will need acces to this money gradually over the decade or so.

What do you think?

JC

Bernie

...deposit the same amount in the bank, you will pay no interest on the mortgage. At the same time, you will not "earn" any interest on your deposits unless you have more on deposit than you've borrowed.

We have done exactly this using cash in a deposit and current account and, with Intelligent Finance, 2x Cash ISA, each with the accumulated deposits of 10 years contributions.

Each year we transfer cash from the deposit account to the ISAs. They only earn interest when there is more deposited in the bank than our mortgage.

You do have to pay back a full payment off the mortgage each month as if there was nothing deposited in the offset. When the mortgage has fallen far enough to "release" one of our ISAs, we move it out to a new provider and start another one with IF.

:beer:

dwsjarcmcd

Bernie wrote: »

...deposit the same amount in the bank, you will pay no interest on the mortgage. At the same time, you will not "earn" any interest on your deposits unless you have more on deposit than you've borrowed.

We have done exactly this using cash in a deposit and current account and, with Intelligent Finance, 2x Cash ISA, each with the accumulated deposits of 10 years contributions.

Each year we transfer cash from the deposit account to the ISAs. They only earn interest when there is more deposited in the bank than our mortgage.

You do have to pay back a full payment off the mortgage each month as if there was nothing deposited in the offset. When the mortgage has fallen far enough to "release" one of our ISAs, we move it out to a new provider and start another one with IF.

:beer:

The only issue I see with Bernie's situation (and it may be my interpretation of what you've said rather than fact) is that if your savings within your Offset account are greater than your mortgage debt, you will not receive interest on the additional amount of savings i.e. mortgage £100k, savings within the offset £125k = no interest on the surplus £25k.

This would not be the case if the savings were outsie the Offset i.e. ISA'S

To the OP, it may be worth loking at the Regular Savings products available given their rates can be pretty good and open a series of these up to your mortgage payments, after yu have used up your ISA allowances

Rick62

I think an Offset with Intelligent Finance would be a sensible option.

Just on Bernie's point that you would still have to make the full mortgage payment each month (with the savings interest going to reduce the balance), they have just changed this, so now you can instead chose to have your monthly payments reduced instead if you prefer.

silvercar

An offset seems a good idea. There are those with linked current accounts and those without.

Make sure you get a good rate. There are many others apart from IF that do offset mortgages (yorkshire, coventry, natwest, RBS...) so do look around.

full-time-mum

Another thought to throw into the melting pot.....

If you are dispilined enough and prepared to remortgage/shift savings around then you could try a DIY offset.

We don't have an captial as such but work by generating money (using 0% credit cards etc) and putting it in the best interest account/isa. We mentally take the interest and add it to our 'mortgage savings'. We actually paid a lump sum off our mortgage last month as the interest we were getting on the savings wasn't as high as the interest on our new fixed rate mortgage.

This works for us because, as a FTM, I am a non-tax payer so get interest gross. We also don't have anywhere near the lump sum you have to invest so you will need to consider your own personal situation and do the sums. We can pay upto 10% off without penalty so at the end of each year, we look at the current savings rate/mortgage rate and decide whether to leave our 'mortgage savings' as savings or to pay off a lump sum.

We also found that the interest rates associated with offset accounts aren't necessarily as good as you can get elsewhere.