Should I pay off my mortgage or get an offset mortgage

tlb2408

Hi,

I've recently come into some money which is more than enough to pay off my mortgage. I did a fixed rate for 10 years at 5.9% and still have 5 left so will have to pay £12k to get out of it. But I owe approx. £135k as off today so will save that in interest.

I was talking to someone about this and they said they would look into an offset mortgage. I was going to pay a large amount off and leave approx. £60k mortgage and have it offset by £60k savings so this would be an interest free loan??

Any advice appreciated.

T

Jimbo1976

If you switch to an offset you will still have to pay the £12k Early redemption charge.

If you decide proceed with an offset then as you say you will owe £60k but offset against £60k in savings.

You willl still need to make a capital payment. Lenders are generally unwilling to give an interest only loan unless you have a repayment vehicle. You could argue your cash savings could pay off the loan but the lender may not accept this as you could blow it on holidays, cars etc during the loan. So you will need to take out a repayment mortgage. whilst you won't pay any interest you will pay capital.

Talk to a broker as some lenders would seek to continually reduce the term (ie as your mortgage balance comes down quicker than expected as you are not being charged interest) rather than reduce your payment they reduce the term). There are lenders who will allow you to keep the term the same but will reduce your payments.

Hope this makes sense.

dimbo61

WHY ?
If you have the once in a lifetime chance to be mortgage free why have any kind of mortgage.
Now we have an offset mortgage and love it BUT it costs to set up a mortgage and you will still have to pay the £12k ERC unless you contact your lenders mortgage centre and ask the question " can I reduce the tern to 5 years so that it finishes when the fixed rate ends"
Now it cost me £50 with my lender to reduce the term.
You then drip feed each month the extra you need to pay from savings.
Use " whatsthecost " to work out how much your new mortgage payment would be each month and how much interest it will save.