offset mortgage

alibinns023

It says on the statements payments due £166.06,I get an annual statement,last one is jan this year,and it just says payments due £166.06 for jan to dec 2011,and on a seperate page it has a list of direct debits paid in each month.I have worked out that the £166.06 is 3% of the outstanding balance when the interest rates went down in Dec 2008.

Thrugelmir

alibinns023 wrote: »

I have worked out that the £166.06 is 3% of the outstanding balance when the interest rates went down in Dec 2008.

It is normal practice not to change the direct debit to reflect any interest credited from the offset account.

On your statement does it list the monthly interest charges?

alibinns023

Yes the interest is £166.06.I am assuming the amount we offset over the 14 year term,will be added as a lump sum at the end.

We have decided to change the amount we pay back to the minimum to cover just the interest,and put the extra £85 into a savings policy,and pay it off at the end,as I can't see any benefit to paying the extra into the account,if it doesn't reduce the interest.I have never heard of a loan where the interest is worked out on the amount borrowed,and then only changes if the interest rate changes.If i didn't know any better i'd say that is a scam,and only a bank or building society would get away with it,i bet the local loan shark is well jealous even they wouldn't get away with that.

Thrugelmir

alibinns023 wrote: »

Yes the interest is £166.06.I am assuming the amount we offset over the 14 year term,will be added as a lump sum at the end.

I'm surprised that the offset interest isn't shown as a credit every month on your statement.

Also that the actual interest charged isn't reducing either.

I would query this with your lender.

opinions4u

Payment due and interest are two different things.

If i didn't know any better i'd say that is a scam,and only a bank or building society would get away with it,i bet the local loan shark is well jealous even they wouldn't get away with that.

Perhaps a polite enquiry to the lender, asking to speak to a supervisor, or reading through the loan documentation, would be more sensible than such statements.

Just because you don't understand something doesn't make it a scam.

It says on the statements payments due £166.06,I get an annual statement,last one is jan this year,and it just says payments due £166.06 for jan to dec 2011,and on a seperate page it has a list of direct debits paid in each month.I have worked out that the £166.06 is 3% of the outstanding balance when the interest rates went down in Dec 2008.

And the interest, itemised as interest? What does it say about that? Is there an annual interest charge?

We have decided to change the amount we pay back to the minimum to cover just the interest,and put the extra £85 into a savings policy,and pay it off at the end,as I can't see any benefit to paying the extra into the account,if it doesn't reduce the interest

Why decide to do anything before you understand how it works?

getmore4less

put a table up of your annual statements and payments made since it went to 3%.

Check your savings accounts are actualy offsetting.


The savings due to offsetiing £3k and the overpayments will not be that much only £10-£20pm

Cornucopia

It sounds as though the offset mortgage wasn't properly explained to you.

The amount outstanding is *effectively* (but not actually) reduced by the offset amount, however it may not actually say this anywhere. Is the offset amount, a savings account, or current account, or similar? The idea is that rather than paying you interest on those, the entire amount is deducted from the outstanding mortgage, and mortgage interest is calculated on the remainder.

On that basis, mortgage interest should be being calculated daily, although again, this may not be shown.

How are you "offsetting", and how does the difference between £66k and £62k manifest itself?

As a general rule, offset mortgages are more tax efficient than saving elsewhere. But the overall outcome may not be straightforward. If your offset is working properly, then you would need an equivalent of 3.6% interest on your savings to get the same effective return as you would from offsetting.

I would be speaking to the society mortgage people and seeking "reassurance" that the offsetting is working properly. And in view of the 8 years to run, I would be looking at what steps are necessary to bridge any gap between the mortgage and the endowment policy.

alibinns023

And the interest, itemised as interest? What does it say about that? Is there an annual interest charge?

The annual interest is OMG I see what you mean,£166.06 x 12 is £1992.72,and we were charged £1871.30,so I guess that's where the offsetting is going.

So now I understand about that,but I still have an issue with being charged 3% on the balance at dec 2008,and not the balance at the end of every year.Need to understand that bit now.

I know I sound stupid,but I worked in Lloyds bank for 19 years,and I thought i understood about money.

Thanks Guys you have helped me unserstand a lot more,I am going to speak to someone at the building society tomorrow to try and get some mor einfo,before I do anything drastic,and no point in spending money on fees if it wont help.

As you also point out,we need to address the shortfall of £20K odd aswell.

opinions4u

alibinns023 wrote: »

The annual interest is OMG I see what you mean,£166.06 x 12 is £1992.72,and we were charged £1871.30,so I guess that's where the offsetting is going.

So now I understand about that,but I still have an issue with being charged 3% on the balance at dec 2008,and not the balance at the end of every year.Need to understand that bit now.

£1,871 interest at 3% implies an average debt of £62,377 for the year.

Your issue seems to be that your payment has stayed the same. The interest has clearly reduced. So your payments now make a modest contribution to debt reduction too.

I know I sound stupid,but I worked in Lloyds bank for 19 years,and I thought i understood about money.

Since when did bankers know about these things? :cool:

alibinns023

Ok,I get it,just took a while to get my head round it.

Thanks for the help,as soon as you said that the £166.06,isn't the interest it's just the payment,I realized how it works.

The £85 extra per month will work out to £8500 off the debt,so we will only have a shortfall of £12K probably less,as the interest goes down each year,so now all i need to worry about is finding that.

Huzzah,I love it when it makes sense.

& I won't even go there about bankers,lets just say I'm glad I left 10 years ago to have my kids,and was lucky enough to not have to go back.