Offset mortgage vs 2.79% 5yr fix?

RedMonty

Hi MSE

Trying to work out if we should go for an offset mortgage.

[It doesn't help that the MSE Ultimate Mortgage Calculator seems to be broken - see my post here - forums.moneysavingexpert.com/showpost.php?p=58514521&postcount=70 (Sorry - am newbie so forum won't let me post active links) ]

We are currently with Santander (!) coming to the end of a 3 year fix on 4.49%, with £130k outstanding (on a 330k property).

Our independent? advisor wants us to stay with Santander & go for a 5 year fix on 3.49% with £125 payment. (£713/month payment.)

After a couple of hours research I found the Co-op offers a 5 year fix at 2.79% with £1000 fee, which works out £570 cheaper per year over the 5 years (inc the fee)! (£665/month payment - hello independent advisor!?)

However, my partner and I have quite high cash savings - about £9k in individual + joint accounts, 11k in savings accounts, plus I might be able to source another 10k from my underperforming shares. We're busy with jobs & 2 kids so not a lot of time to look after our cash so it's in rubbishy accounts.

(We're good at saving - no car, few holidays etc but not very good at actually making the saved money work).

Am looking very hard at First Direct's offset mortgage - seems highly recommended here, and good to have all our cash in one place and working hard.

FD current offset offers:

2yr fixed fee free, 3.49% then svr 3.69%
2yr discount tracker, fee free, currently 3.39%
3yr fixed, fee free, 3.79%
3yr fixed, £500 fee, 3.49

All quite similar monthly payments, around £530-560 per month which is very affordable, & will let us pump even more cash into the offsetting savings account.

What do you think?

- Co-op 2.79%+lump-overpayment+ISAs(low performing at moment)

OR

- 100% First Direct offset? (which deal?)

(PS I am aware of FD's 8% account, but that is balanced by Santander's 3% account, but as I said we don't have much time to actively manage our money, so FD's stick-it-in-the-savings-offset-account-and-forget-it is appealing)

Cheers RedMonty

latecomer

The Co-op mortgage has an overpayment facility which allows you to withdraw any overpayments that you have made. We are just completing on this mortgage at the moment as it suited our needs perfectly. We spent a lot of time looking at alternatives including offset and trackers before choosing this one - we are putting most of our cash savings into the mortgage at the switch over but are still retaining ISAs which can be called upon if required in addition to the cash savings we are keeping as our emergency fund.

Their overpayment is based on financial years so you could overpay by 10% before April and then another 10% in April which would offset most of your savings including the additional £10K. Best of both worlds?

michaels

latecomer wrote: »

The Co-op mortgage has an overpayment facility which allows you to withdraw any overpayments that you have made. We are just completing on this mortgage at the moment as it suited our needs perfectly. We spent a lot of time looking at alternatives including offset and trackers before choosing this one - we are putting most of our cash savings into the mortgage at the switch over but are still retaining ISAs which can be called upon if required in addition to the cash savings we are keeping as our emergency fund.

Their overpayment is based on financial years so you could overpay by 10% before April and then another 10% in April which would offset most of your savings including the additional £10K. Best of both worlds?

I was about to say the same thing, the overpayments are max 10% pa but can be cumulative over more than one year - however I was told that the years were calendar not financial?

Just to say I am on a FD life tracker at 2.49% and am almost certainly going to switch to the coop deal so compared to a 3%+ offset I think it is a no brainer.

Thrugelmir

RedMonty wrote: »

After a couple of hours research I found the Co-op offers a 5 year fix at 2.79% with £1000 fee, which works out £570 cheaper per year over the 5 years (inc the fee)! (£665/month payment - hello independent advisor!?)

Have you costed in. Redemption fee on current mortgage and legal costs on remortgaging. Does £1k product fee include valuation fee.

Make a News Year resolution and review your finances.

Any excess cash use to pay down your mortgage. Savings rates are low. So better used this way.

latecomer

For the Co-op mortgage being considered they offer free valuation and basic legals for a remortgage.

RedMonty

Thanks to everyone for your helpful suggestions.

latecomer wrote: »

The Co-op mortgage has an overpayment facility which allows you to withdraw any overpayments that you have made.

Are you able to point me to where on the website it says this? I can only find reference to allowing overpayments - not to being able to suck these overpayments back out!

Their overpayment is based on financial years so you could overpay by 10% before April and then another 10% in April which would offset most of your savings including the additional £10K. Best of both worlds?

I may be wrong but you seem to have overlooked that with the 5 year fix, any overpayment has quite steep charges in the first few years. If I read their website right, any capital repayment is charged at 5% in the first year, decreasing by 1% per year afterwards. Ouch!

RedMonty

Thrugelmir wrote: »

Have you costed in. Redemption fee on current mortgage and legal costs on remortgaging. Does £1k product fee include valuation fee.

Make a News Year resolution and review your finances.

Any excess cash use to pay down your mortgage. Savings rates are low. So better used this way.

Both the Co-op and First Direct *seem* to include free valuation and legals on remortgaging (or hide it in the product fee).

Good point on redemption costs with Santander. - I will check that.

Re: paying down mortgage - we both like to keep quite high reserves so if we can't get our overpayment back out of a mortgage, then there's a lot less available to commit to pay it down.

If Co-op allows return of overpayments (and doesn't charge a fee) then that is quite good. Otherwise First Direct looks good - currently we are earning a fair bit more than we need to pay mortgage so we can put this in for the next couple of years or so - but of course this won't last forever - both our jobs are funding dependent (!) - so job-loss is always on the cards - so with First Direct we can recover that offset and use it in rough patches.

Thrugelmir wrote: »

Make a News Year resolution and review your finances.

Damn right! That's exactly why I started this thread

getmore4less

Learn how to compare mortgages properly

The easiest way is with a simple calculator that shows the amortization, I use
http://www.whatsthecost.com/mortgage.aspx


Set the starting point by adding fees.
make the payments the same(so you don't have to take account of saving the difference)
look at whats owing (month by month)

so to compare two 5 year fix you compare after the 5 years.

You can't use just the difference in monthly payments to give you the savings against the fees.

latecomer

latecomer wrote: »

The Co-op mortgage has an overpayment facility which allows you to withdraw any overpayments that you have made.

RedMonty wrote: »

Are you able to point me to where on the website it says this? I can only find reference to allowing overpayments - not to being able to suck these overpayments back out!

I cant find it on their website but they will confirm this over the phone and I'm sure its in some of the paperwork I recieved with the application.

If you search online you will find numerous references to this.

michaels

RedMonty wrote: »

I may be wrong but you seem to have overlooked that with the 5 year fix, any overpayment has quite steep charges in the first few years. If I read their website right, any capital repayment is charged at 5% in the first year, decreasing by 1% per year afterwards. Ouch!

ERP applies to overpayments of more than the permitted 10% that becomes a flexible fund, and this is cumulative either per year or per financial year (unsure of which). It is also a bit like an isa in that you can not overpay 10%, take 5% back out then put the 5% back in.

It is somewhere on the website or call the 0800 number and they will explain. It is not as flexible as FD but they don't do longer than 3 years fixed offset.

waveneygnome

Another thing to bear in mind is what happens after the 5 yr period.

Granted it is at least a decent amount of time away (rather than say a 2 or 3 yrs fix).

I would wager that FD rates would still be competitive, so you wouldn't have to remortgage/move mortgage providers......with set-up fees etc.

With the Co-op, in 5yrs time what rate would you revert to?

Having said all that...........coop does seem like a good deal.