Trying to find particular type of offset mortgage - can someone help please?

fairy2

I was wondering if someone can help. We are trying to find a particular type of offset mortgage but looking into the detail of these we are finding it hard to get what we want.

As I am sure you know the basic concept is that monies in linked bank accounts set off against the outstanding principal of the mortgage. However providers seem to have different methodologies of dealing with the interest on the mortgage.

Type 1

Some companies take only the interest on the amount calculated by subtracting the amount of money in your bank account from the principal of the mortgage. Therefore a mortgage payment can be significantly reduced if there is a substantial amount in a bank account for the corresponding period. At the end of the term notwithstanding what amount of money has been offset the entire principal of the mortgage will remain due (I have only found First Direct that operates like this so far).

Type 2

Other companies operate their offset mortgages differently. Even if there is substantial funds in a bank account they will take the amount of interest due on the whole mortgage as if there were no money being offset and then apply part of the amount against the “true” interest which is due and then apply the rest against the principal of the mortgage. Depending on how much money is being offset this has the affect of paying down the principal of the mortgage even on an interest only mortgage. It is not possible to take back this overpayment. (Intelligent Finance, C&G/Lloyds seem to operate like this)

We are looking for a Type 1 mortgage with a reputable provider. As my husband has a buy to let flat even though this more then covers itself. First Direct treat this as a liability only (i.e. the cost of covering the mortgage payments on this) and don’t look on this as an asset with equity and income to cover the payments so this affects the amount they are prepared to lend so they are no good for us.

I am trying to find another lender that operates a Type 1 account or a Type 2 which allows you to take back the overpayments when you want.

Any experts out there know who provides this? If not does anyone know who else at least does these type of offset mortgages?

Many Thanks.

chivers1977

The woolwich/ barclays product works either/ or option 1 and 2. you can switch between. you can have a reseve facility set up to a total of 90% LTV 9including main loan. This can be drawn down at mortgage rate. Any payment of capital of £2k whether cumulative or one off will increase the reserve facility available.

silvercar

Coventry BS allow you option 1 or option 2. They will also ignore the flat if it pays for itself; a specific question that I asked them when arranging my offset with them.

payless

You may wish to take a look at Int Finance again, they have recently extended their options on how clients can "take their offset benefits"

Shoterer Term
Reduced Debt OR
Lower payments

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plus are generally OK with self funding B2L