remortgaging advice wanted

goldmask

saejtin wrote: »

Mmm, apologies but even after some googling I don't really understand the offset mortgage. Could you explain it a little more please perhaps in terms of what elements we pay and when we pay them?

It's like that you have made an over-payment to your mortgage to reduce the balance and the interest, but the money is still yours and you can take it out if you want. Some banks even allows you to offset ISA saving. So when ISA rates are low, you can use ISA to offset your mortgage. When ISA rates go up in the future, you can transfer the savings somewhere else without losing the tax free status.

Thrugelmir

saejtin wrote: »

On further thought I think we should consider the option of selling/surrendering the endowment (with advice naturally) so thank you for raising this option.

Does the policy pay a terminal bonus on maturity?

This may represent a sizable element of the final pay out.

saejtin

So, in our context, we wait until the endowment matures (taking out a different suitable mortgage meanwhile) and when it matures we go onto an offset mortgage using the money from the endowment as a sort of overpayment (but if we need the money we tell the building society who will adjust our payments accordingly)?

saejtin

There is supposed to be a terminal bonus but it is not guaranteed and I'd read advice not to take it into consideration for this reason. The annual bonuses have certainly been very low in recent years (1% of the basic benefit if I have understood correctly) although perhaps annual and terminal bonuses are not correlated.

saejtin

In reply to EMac, we have other ordinary life cover so this is fortunately not a problem.

jackomdj

The way I describe offset is you have all your money in separate accounts (I know some lump it all together but I am with c&g who don't)
Interest is calculated daily:
So you have a mortgage of £100k (-100 as money you owe the bank), you have saving of 10k, current account with 4k (as its payday) that means on that day you will have interest on the £86k added to your mortgage, but remember your mortgage payments are calculated based on paying the interest on the full amount so you will be paying extra capital off.
So now come to you getting your endowment say you have already paid £10k from the mortgage so you now have a mortgage of £90k, savings of 10k, your £70k endowment is now sat in the bank plus your salary so you only get charged interest on the £7k. Almost all your monthly mortgage is paying off capital, which gets you in a better position, say you are paying £800 pm in about 12 months you will have paid off about £8k. The following year you will be paying off all capital.

By this time you would start moving your savings over the mortgage outstanding value into an account which gets you interest.

The other things I do are pay everything on credit card, so my money is in my offset account for longer (so saving interest) also it is an Amex account (so I get cash back on every transaction), This is paid monthly automatically in full so never any interest penalties. I also overpay by rounding my monthly mortgage payment up to the next £100 (ie say I pay £780, I have asked the mortgage mop any to take £800, as I don't overly miss the £20)

I hope this helps.

Eta I did not go back to check your values so have used a general example

Thrugelmir

saejtin wrote: »

There is supposed to be a terminal bonus but it is not guaranteed and I'd read advice not to take it into consideration for this reason. The annual bonuses have certainly been very low in recent years (1% of the basic benefit if I have understood correctly) although perhaps annual and terminal bonuses are not correlated.

There's no correlation. Suggest you give your provider a call. To establish the position currently. Better to be informed.

Surrender value will a lot lower than you may expect.

saejtin

Thank you jackomdj. It's taken me a couple of read-throughs but I think I have got it now. What I'm wondering though, is, if we don't have any savings (which we don't) do we have to wait until the endowment matures before we apply for this type of mortgage or could we take one out in May this year when the fixed period on our present mortgage ends?

jackomdj

You could take one out, you may (depending on who it is with) be able to offset your current account and as I said I ensure all my money stays in my account for as long as possible.

It may (I am not an expert - sure one will be along soon) be at a higher rate than a non offset, but if you took it out now and your policy matures in say 18 months (sorry not gone back to check) then at least you would not be paying out a second set of fees, you would have to cost it up.

I was really lucky, I took mine out when they had not been out very long and it tracks 1/2% above BOE base rate for the life of the mortgage, plus it was fully portable so when we moved, because we ticked all their boxes, because of the original mortgage terms they upped the mortgage at the same rate. Even the mortgage advisor said what a brilliant deal it is.

saejtin

A sincere thank you for all the helpful replies I have received on here. I have learnt a lot and am considering some options I was ignoring and some I just didn't know about. So now for some further research and advice seeking and I'll report back in due course!