Offset Mortgages -- the Numbers

Gambler

KTF wrote:

This might have been asked already but does anyone have the original formulas in Excel format as I am having trouble following the calculations.

This would be extremely useful. Thanks

Daniel_B

There is a pretty easy way to figure out how much you will save with a set amount of savings.

I have an offset, and for example, when I use this method, it is only £1.40 out on the actual interest I paid - I guess length of month, as well as other balances come into play.

The way I do it, is take the interest rate my mortgage is at, so for the sake of argument we'll go with 5.75% - mulitply the balance by this percentage - for an example we'll use £150,000 = £8625.00
Now divide this amount by 12 = £718.75 per month.

Now if you had savings of £20000, you could do this same sum again, but this time on a balance of £130000 (Less your savings offset above), which at 5.75% = £7475.00 - divide this by 12, and you get a total of £622.91 - so give or take, £100 less interest paid a month, or even better, £100 more CLEARED a month.

So you'll save about £1200 in one year with that scenario - and what interest would you earn in a savings account, 5% before tax if your lucky, which in my eyes, including the compund interest, is somewhere around £1100 - £1200, so the same, but the TAX man takes a share of it.
No contest for me.

I am in a very fortunate situation of being able to cancel out my mortgage when it still has about £60,000 balance remaining, but instead of paying it off immediately, I will carry on paying it, treating it as a 0% loan, and clear it in 5 or 6 years hopefully, then at the end of that period, I have no mortage, and a good amount of savings.

Cheers

Dan

red_debs

I have been using funds to offset against my mortgage and have enjoyed the benefit of a next to nothing interest charge each month. The time has now come that the amount of savings I have offset is greater than the mortgage owing and I am wondering what to do next as the building society will not pay me interest.

Has anyone been in this boat and found a good alternative?

red_debs

david78

red_debs,

Have you used up your cash ISA allowance. If not put any new savings in there.

Also if you have other debts you should pay them down.

benjilloyd

Having re-written my post several times now I have decided to cut the chase --Is there anyone out there, a company or individual, who would be willing to take all our facts and figures and help us work out if an Offset is the way to go.

ben :-/

silvercar

I've just moved to an offset with the Coventry BS. It offered a fixed (for 3? years) of 4.99%.

A lot of savings were sitting in a Coventry online account earning less interest, plus the fact that there was far too much "rainy day money" sloshing around in a current account earning 0.5% (before tax!).

The figures seemed to add up, especially as we may move in the next 2 years and this deal is portable. so seems to make sense.

The icing on the cake was a rate drop on the (now emptied) savings account 2 days after we started the offset, tipping the figures into a definite positive!

Joe_Bloggs

@silvercar
It appears that there has been a fair bit of rethinking on the rates offered by a few lenders on this topic, to try make them more competitive with the mainstream.
Can you supply a link to your deal ? Where is the benefit if you empty your savings account. Is the presumably new savings account linked with your mortgage ?
J_B. (I am not a financial journalist or a mortgage broker.)

silvercar

Here's the link:

http://www.coventrybuildingsociety.co.uk/mortgages/frame_mtg_A.asp

you need to click on "rates" under the heading mortgages on the left hand side. Mine is the bottom one of the 3 deals on offer.

My online savings account was emptied into the offset savings account.

One plus of the Coventry is that their customer service people are very helpful and well informed.

canny_yorkshireman_2

well having read most of the posts on this subject find it usefull and amusing. I recently switched to an offset plan not because i did all the number crunching or rate comparrisons but because it is so simple to earn the maximum savings rate on my megre savings without the hassle of switching accounts and watching every move the market makes because thats how they make the money out of us poor citizens.And the flexibility to make over payments and no penalties for missing or otherwise which makes a refrehing change. Also i only neede a short term mortgauge and this was by far the best option.

beefster

I this correct..... or even close?
From another thread......

"£5000 of savings is equivalent to £20 off the monthly fee (4.89%)."

"If my calcs are right (someone here will tell us if they're not), £20 per month off mortgage payments equals approx 0.2% off the mortgage rate (assuming £100k mortgage)."




I think its there or there abouts?