how to pay off the mortgage?

ajc2010

hi there folks

a little bit of advice required.

i currently have a mortgage with the halifax of 140,000 and am hoping to pay it off in the next few years. however, i'm not quite sure how to pay it off.

a couple of people at work have mentioned about the 'offset mortgage' in where you can put money into the savings and reduce your term/payments. Or the other option is to pay off the mortgage as per normal and overpay until it is paid off.

I do have savings in the bank in which i could use, but a little guidance from others who have a better understanding of the offset mortgage would be much appreciated

many thanks

edinburgher

An offset mortgage allows you to offset potential savings interest against the mortgage interest charged.

So if you had an offset mortgage with a bank and £5k in a suitable savings account with the same bank, you'd only be charged interest on the mortgage amount minus the £5k in savings. You won't be paid savings interest, but you are hopefully saving by not paying the mortgage interest.

You still have to pay the capital borrowed back to the bank at some point, as offset mortgages are interest-only.

You can use them to reduce the interest paid, but the term will remain unaffected unless you make overpayments.

Useful information to help people offer better suggestions would include your current mortgage rate, what savings you have and what rate you're earning on the savings. Alternatively, if you have enough to pay it off outright, it can be a lot more straightforward to calculate the benefits of doing so.

:beer:

megela

My offset mortgage is a repayment mortgage with standard interest/capital payment every month as normal. But my savings are offset against the capital meaning I only pay mortgage interest on capital-savings.

This means less interest paid each month and more capital per month reducing the term.

However I think offset mortgages do tend to have a slighter higher interest rate as well. Mine's 4%. But it works for me, allowing me access to my savings but using them to reduce the mortgage as well.

I think you have to work out whether you have enough savings to balance the slightly higher interest rate. I have read somewhere it should be around a 1/3?

edinburgher

My offset mortgage is a repayment mortgage with standard interest/capital payment every month as normal.

Who are you with Megela? I'd looked at FD's offsets and had (wrongly?) assumed that all offset mortgages were interest-only.

PaddyPaws

Edinburgher - our off-set is with FD, and it is an IO mortgage, but FD are great. We said we wanted to repay it as a repayment mortgage and they calculated what our payment would be. We then asked for the dd to be slightly higher so we op every month. So we've got savings off-set but also op and it's a repayment mortgage.

So far we've trimmed over 4 years of the term, and if we needed to cut our monthly outgoings FD would recalculate our monthly payment based on what we owe now, so we would repay over the original term but this would now be a lower monthly payment

HTH
PP

sweetdaisy

edinburgher wrote: »

Who are you with Megela? I'd looked at FD's offsets and had (wrongly?) assumed that all offset mortgages were interest-only.

I am highjacking slightly (sorry) - I have a Repayment Offset mortgage with Natwest at 4%.

Matt_The_Chippy

My Offset is with Santander, repayment at 2.99% over base rate. For us, this is a fabulous product. The staff in branch are a pleasure and I'm on first name terms with most of them. To make overpayments (no limits) takes moments in branch. Canbe done online easily as well. To help us clear the mortgage, this mortgage has been the biggest help to us by far.

Best of luck with your own task.

megela

sweetdaisy wrote: »

I am highjacking slightly (sorry) - I have a Repayment Offset mortgage with Natwest at 4%.

Sweetdaisy beat me to it! That's exactly the same one we're on.