Help with Offset Mortgage

fizz1969

HI

Newbie here - hope someone can help!!

Have had a read through the posts but very confused.

Have had an offset mortgage with IF for 10 months. Part repayment but majority interest only.

We have 20k in current account and usually get £2,500 into account on a monthly basis.

We spend on Credit cards all month and pay the total balance at the end of the month.

We receive into the account around about £50 in interest which I usually transfer to the mortgage account. We have a mortgage for £90k and are currently repaying about £514.00 per month.

Problem a) the mortgage is not decreasing as fast as we were shown on paper (in fact the balances have hardly changed)
b) our friends who have the same mortgage have had their first statements and they have £50K in savings and they are not gettting interest.

We were told by our FA that we would be done and dusted in 11 years - having read the threads Im not so sure now.

Please can somebody put our minds at rest ????:o

rjm2k1

No expert in the IF account, but the fact that you are receiving interest may suggest that the money hasn't been setup to offset the mortgage correctly. Simply transferring the interest into the mortgage every month isn't enough since the balance isn't offsetting the mortgage (you are paying interest on 90k rather than 70k) and you pay tax on the interest you receive into your current account.

fizz1969

so would you contact IF to check or go through the FA?

runmartin

I would phone IF. They will tell you how the mortgage is really set up, i.e. which accounts are being used to offset the mortgage.

fizz1969

so does anybody clever think that we have an ok mortgage and it will be paid off in 11 years then??

rjm2k1

Need more details for that, what's the apr, how long is it fixed for if at all, what's the term, what's the interest only/repayment split, if interest is calculated daily, we would need to know how much of the 2500 is left per day though it might be possible to estimate based on what's left at the end of the month.

You can calculate it yourself here, click the Begin Calculation button near the middle of the page. http://www.if.com/# I got these results using the following guesses :-

Loan amount : 90000
Interest only Portion : 45000
Repayment Portion : 45000
Initial Savings : 20000
Income after tax : 2500
Income left at end of month : 1000
Product : Offset tracker 95 until 1.9.09 (Boe + .49%)
monthly payment: £518
No overpayments
Term : 25yrs
Reduced term option

Gives a term reduction of 7 years 7 months (leaving 17 years and 5 months to pay) and an interest saving of £117k
Of course, this is assuming the 20k remains available throughout the mortgage which is not likely as you may dip into it, otherwise you would have just borrowed 20k less.

stuteach

I had a Rapid Repay Account with the Clydesdale which is very similar to the Offset Account. I think this type of mortgage only suits if you can pay way over what you should actually be paying per month. Say for example a monthly amount for a 'normal' £90,000 mortgage was £500. Then really to get the best out of your Offset account you would have to pay way over this to get the real benefit from it. You are paying a high interest rate for the privelage of overpaying every month.

Personally, at first I thought this was very good and did go for it, but after reading Martins Guide to Mortgages http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1157017651,88404, I decided to dump it and go for a mortgage that would let me overpay but with a lot lower interest rate.