What happens when Offset amount matches Mortgage balance?

FlashBarry

I have only just started using my Offset feature, so can someone please help me understand how my Offset Mortgage works?

The interest in the Offset account is the same as the interest charged on the mortgage.

If I had, say, £100k in the Offset account and a remaining balance of £100k, would it cost me more money to “keep the mortgage going” by matching the mortgage with the offset value rather than just transferring it as an overpayment and clearing the whole thing off? (Mortgage does allow unlimited overpayments by the way). If I have saved up £100k for the mortgage, is just feels strange that I keep having to pay my £500 amonth for 20-odd years.

Also, when your Offset savings matches your Mortgage amount (again, £100k in each), do they just use £500 from the offset to pay that month’smortgage payment? Otherwise, you would have more in your Offset than you owe on the Mortgage. (£100k in offset, £99,500 left on Mortgage balance)

So, can you have more money in your offset account than you owe on the Mortgage? If yes, do you get the full amount of offset interestpaid into the mortgage?

Thanks

HappyMJ

If you have more money in your offset account then you probably won't be earning any interest on the excess. You won't be charged any interest on your mortgage. If the interest rate on your mortgage is very low you may be able to earn more interest in savings accounts with other financial institutions.

FlashBarry

Ahh, so they just don't pay interest on the amount over the Mortgage balance.

If I wanted to, could I just instruct them to take my regular monthly payment from the offset pot meaning I don't have to pay anything else towards the Mortgage? i.e.

Mortgage Offset
£99,500 £99,500 --> Use £500 from offset to pay Mortgage
£99,000 £99,000 --> (etc)
£98,500 £98,500

notanewuser

My offset (first direct) works a bit differently. I don't get interest on linked savings accounts or current account. Whatever is in the linked accounts gets an equal "interest free" chunk on the mortgage.

Mortgage is currently about £117k, but is fully offset. :beer:

Technically we don't have to make mortgage payments at all while the accounts are balanced, but the normal repayment is made from DH's bank account each month, thus reducing the mortgage balance by the same amount each month. I then move the corresponding amount out of the savings account into an interest bearing savings account elsewhere. So the 2 balances remain level.

YorkshireBoy

I'm 100% offset with YBS, and use their 'net interest' feature so I don't make a monthly payment.

I view it as a nice big overdraft facility (costing 3.75% at the moment [BOE+0.75% with a 3% collar]) should I ever temporarily fall on hard times.

I also understand it's easier to get another mortgage if you already have one than to start again (at my age!) should I decide to move.

I won't be paying it off until I have to in 2019.

FlashBarry

Great comments - thanks all.

My mission is to be "Mortgage free" in 3 years, but I may still need a mortgage if we decide to move and take on a bigger mortgage.

For now, I will keep dumping my extra cash into the Offset with the view that when the Offset matches the mortgage, I will consider my challenge to be complete.

FlashBarry

notanewuser wrote: »

...Technically we don't have to make mortgage payments at all while the accounts are balanced....

Congrats on being fully offset! I hope to be so myself soon.

Can I check - Why don't you need to make payments at all? Would the bank just take the monthly payment from your offset account if you don't pay in? Does your balance reduce each month by the amount of your normal monthly payment?

notanewuser

FlashBarry wrote: »

Congrats on being fully offset! I hope to be so myself soon.

Can I check - Why don't you need to make payments at all? Would the bank just take the monthly payment from your offset account if you don't pay in? Does your balance reduce each month by the amount of your normal monthly payment?

Because its technically an interest only mortgage. FD only require that monthly interest payments be made. So as no interest is payable no payments are due.

We make a £1200 payment each month anyway (as redid before being fully offset) which comes off the balance.

FlashBarry

Thanks for clarifying.

Mine is a repayment Mortgage, so we would need to maintain a monthly payment from somewhere.