offset mortgage- pay off or keep the money

peterusa

Hi
I have £160000 outstanding off set fixed rate ( 5 years) mortgage with £45000 in offset account

Iam paying £ 900 per month

I have another 15 years to pay

will it be better for me to contribute to savings account so that I can offset the interest I need to pay and will have the flexibility to use the money when I need OR pay off the loan using the excess money

Thanks and regards

bigadaj

What rate is the mortgage at?

peterusa

I am paying 3.84% and Iam a 40% tax payer

bigadaj

Higher rate taxpayer means that you'll be struggling to net 2%, probably less, so savings won't match your mortgage rate.

I would pay down as best I could, making sure there was a Reasonable cash reserve, might be worth shopping around for another mortgage as there are lower rates out there.

Perelandra

Sinace it's an offset mortgage, financially it will make very little difference between the two.

It may make a difference, though, depending on your character...

If you're financially disciplined, then leaving the money in the offset account will be better for the reasons you say- flexibility if you need it, or savings rates improve.

If you're not financially disciplined, and might "dip in" to the avings for something you don't really need, then you may want to consider paying off a chunk- it makes it harder to get access to the case straight away!