Offset Mortgages -- the Numbers

wiggers

The One Account is unique, as far as I know, in that you just have one balance and one interest rate. Your salary and other income is immediately applied to reduce your mortgage balance and the interest is calculated daily on that. I have also applied various bonuses and the compensation from my endowment policy to this account and the interest amount payable has dropped significantly over the years. Also, by using the 0% credit card trick I can effectively earn interest on the CC balance.

If your borrowing facility (credit limit if you will) is less than 50% of the value of the property then the rate is just 5.6% at the moment. As a higher-rate tax payer I would struggle to find a better way to invest the bonuses and things than putting them in this account. I hadn't realised they gouge you for such an outrageous setting up fee nowadays. Hasn't been the same since the Virgin tie-in was dropped and RBS took over!

Joe_Bloggs

The only thing wrong with the one account is the lousy interest rate ! This penalises those with little savings to offset.
There are cheaper sub 5% tracker offset deals available. Once your savings aproach the mortgage level then the rate becomes unimportant.
If you can do your own calculations then the case is clear either way.
J_B.

wiggers

True, there are cheaper deals, but I find the premium worth it for the flexibility the account provides. Being able to pay off large lumps of the mortgage and settle large bills without any hassle is very convenient. But not everyone needs that. Also, having your salary immediately applied to your mortgage means the effiective interest rate is lower than the headline figure.

jackieblue

chris1978 wrote:

Joe, thanks for replying. We have some savings - around £10k and around £2k of debt which should be out of the way before the end of the year.

Why wouldn't you clear your debt with some of your savings - or are your debts on an interest free basis? Are you earning at least as much on your savings as you are paying on your debts ? Just a thought.

chris1978_2

jackieblue wrote:

Why wouldn't you clear your debt with some of your savings - or are your debts on an interest free basis? Are you earning at least as much on your savings as you are paying on your debts ? Just a thought.

Yes, the debts are interest free and will be cleared before any interest is applied. The savings are earning interest.

The one thing that concerns me with the One Accounts projections is that they vary wildly from those of the offset mortgage offered by IF (Intelligent Finance). From what I can tell it is also calculated daily and according to them my mortgage term would only reduce down from 18 to 14 years compared to 18 down to just over 8 with the OneAccount. What am I missing here???

If somebody else wouldn't mind having a look as well I'd appreciate it. The two web addresses are:

http://www.if.com/MainIF.html
http://www.oneaccount.com/

Thanks again!

benjilloyd

Chris1978,

It seems the Offset, door-to-door is hardly any different in reality to getting good discounted rates, say every two years. It's disappointing I know. I had the same initial *wow* factor when I started looking at them over 2 years ago now. Since then, off and on, I have been trying to find a "proper" spreadsheet that will allow me to compare an offset with a 'normal' mortgage+saving your money in high interest accounts.



The user "youreds" has VERY kindly posted a spreadsheet on this forum, youreds also helped me modify it to try and show what I wanted but I am still a little in the dark, I have 18 months before I can change mortgages and still hope to get a definative spreadsheet that will give as simple an answer as possible.

As soon as I get it I will post it here, I'd appreciate anyone else doing the same.
cheers
ben

Hobo_2

chris1978 wrote:

Yes, the debts are interest free and will be cleared before any interest is applied. The savings are earning interest.

The one thing that concerns me with the One Accounts projections is that they vary wildly from those of the offset mortgage offered by IF (Intelligent Finance). From what I can tell it is also calculated daily and according to them my mortgage term would only reduce down from 18 to 14 years compared to 18 down to just over 8 with the OneAccount. What am I missing here???

If somebody else wouldn't mind having a look as well I'd appreciate it. The two web addresses are:

http://www.if.com/MainIF.html
http://www.oneaccount.com/


Hi Chris, yes the One Account does seem better & is slick the way it is marketed.
The "IF" years saved are because of interest saved by offsetting & your capital still sits in your savings pots.

The One Account, is all in one so is your interest saved + capital is assumed to pay mtg off at break even point.

Of course now you have no savings, and can acheive this same position @ IF by paying off remaining mtg with savings pot.

benjilloyd

Hobo wrote:

Hi Chris, yes the One Account does seem better & is slick the way it is marketed.
The "IF" years saved are because of interest saved by offsetting & your capital still sits in your savings pots.

I thought If and One worked the same, ok with One the money all 'appears' in the same One pot and IF 'appears' in different pots but the net result is the same surely? As for what they've done with the calcs to make it look so much lower it will be interesting to see if anyone has an answer.

wiggers

The IF website isn't very clear, but I get the impression the interest rates for the savings balance and mortgage balance are different. With the One Account there is just the one interest rate and there is just one balance. You need to do your own calculations to see which is better for your situation.

benjilloyd

Surely there isn't an interest rate for the savings account with IF as the money offsets the mortgage?