Ditch my Fixed for Offset?

khowe

Hi

I have recently come into a large lump sum of money, I am considering ditching my fixed rate mortgage of 3.1% for a Offset mortgage.

Has any one done the same and might have advice on this?

Thanks

martinsurrey

will you need to lump sum again?

If not you could just overpay, pay the penalty (ERC) and keep the fixed rate you're on.

If you remortgage onto an Offset, you'll pay a larger ERC (as you'll redeam the whole balance), pay fees for an ofset, and be on a worse rate.

JimmyTheWig

I agree with martinsurrey. Probably best just to pay it off the mortgage and be done with it.
Whether it is worth paying it all off now or putting it into savings until the ERCs are no longer due will depend on how much the ERCs are, when they expire and your (and your spouse's, if you have one) income tax position.

Gary123456790

Hi,

There is a ditch my fix calculator here - it will basically depend on your current rate and the ERC

http://www.moneysavingexpert.com/mortgages/fixed-discount-mortgage-guide#ditch

Also consider overpaying your current mortgage - there will be overpayment limits but you may find that shortening the term is useful in that it increases the monthly payment but often this is not classed as 'overpayment' as its just the normal payment, albeit a big one.

When my mother in law passed away we received a life insurance payout. I reduced the term on our mortgage to 2 years, making the monthly dd £7,800... this was a good number for us as it put in what we wanted after 4 months.

You have to be very careful doing this, as you often have to arrange the term change a couple of months in advance and you dont want an extra month at £7,800...!

Also consider keeping some back as a slush fund for car/boiler/pet repair if you havent got a suitable cushion already.

Gary.

kidmugsy

3.1% p.a. is pretty good. How much of the loan's fixed rate period is left? How big is your large sum compared to the outstanding mortgage loan?

dimbo61

If your current mortgage rate is 3.1% I would make sure you make full use of your Cash ISA allowance for both yourself and your OH.
Then read the T&C,s of your mortgage and see if you are allowed to overpay and by how much!
Many fixed rate deals allow 10% each year and you may be able to overpay another 10% in jan 2013.
Fill another Cash ISA or TWO in april 2013
Check if you can reduce the term ( I paid £50 to do this )

khowe

Thanks for you responses, I have 2 years left on my fixed rate. I have about 60k of savings but I would like to keep it as a lump sum and not spend just in case, this is why I was thinking of offsetting instead of overpaying.

martinsurrey

what tax rate do you pay (0, 20%, 40%, 50%)and what is the current outstanding balance on your mortgage?

khowe

I have about £155k left on mortgage and I am a basic rate tax payer 20%ish

kidmugsy

khowe wrote: »

Thanks for you responses, I have 2 years left on my fixed rate. I have about 60k of savings but I would like to keep it as a lump sum and not spend just in case, this is why I was thinking of offsetting instead of overpaying.

You could at least consider a two year fixed rate Cash ISA that pay above 3.1% p.a. https://forums.moneysavingexpert.com/discussion/401374

Or consider the two year Tracker Cash ISA at the Cambridge BS. It pays 2.75% p.a. above base rate i.e. currently 3.25% p.a.

But I can see why you are considering offset.

kidmugsy

Here's another thought. If you were prepared to spend some of the cash on reducing the debt, you might reduce your LTV far enough to qualify for a lower interest rate. Maybe a good compromise would be to wait for the fixed rate period to expire and then see how good a new deal you could find at the time, using your capital to best effect. In the meantime you (and your spouse?) could use Cash ISAs as much as possible.

For a useful tax-exposed account, consider:
https://forums.moneysavingexpert.com/discussion/4227869