Offset Mortgages -- the Numbers

wiggers

I don't know, their website is a bit obscure.

Jays

I'm offset with First Direct, try their page, it explains offsetting clearly, they also offer several different types of offset ie, fixed rate, tracker etc. http://www.firstdirect.com/mortgages/rates.shtml

When I first moved my mortgage to them, I went through London & Country who were first rate at the time, but I understand from this forum may not be at the top of their game now. They offered a tracker rate at a more favourable rate than First Direct offered directly.

I have been very pleased with the bank, we overpay the mortgage (either by just transfering the extra that month or by increasing the direct debit as and when we wish - absolutely, no hassle) as well as offset against a savings account, my current account, and my husband's current account (you can have all your accounts offset against the debt - every penny counts).

Whenever, I call them I get straight through to a real person (no automated menu systems) , based in this country (which does not matter in it's self, but the person always understands me and gives me the answer if it relates to the banking accounts, out of hours mortgage advise is generally to get them to phone me back, which they do).

Jays

PS I looked at the One Account, but did not fancy the thought of a 'deep dark hole of debt' as a bank account, which is what I see the One Account as. I wanted to know we had some money somewhere to fall back on when redundancy rears it's ugly head (3 times so far, talking from experience).

Jays

Just an extra tip, 'they' say you need a third of your debt in savings to make offsetting worth while.

Jays

wiggers

Jays wrote:

PS I looked at the One Account, but did not fancy the thought of a 'deep dark hole of debt' as a bank account, which is what I see the One Account as. I wanted to know we had some money somewhere to fall back on when redundancy rears it's ugly head (3 times so far, talking from experience).

Perceptions can be deceptive! Your net worth is the sum of all your savings and borrowings. It doesn't really make much difference if you have them in one or several accounts, but you need to watch the total amount of interest you pay/earn. This also depends on your tax status. There's no hard and fast rule, you have to work it out for your own situation and decide if the flexibility of, say, a One Account, is of benefit.

BTW, the 'one third' rule is also a bit misleading as it depends on the relative interest rates.

Edit: With the One Account you can view your 'savings' as the difference between your facility (borrowing limit) and the current balance. You just need to ensure that you can pay off the current balance at the agreed date and One Account provide tools to help you plan ahead. (BTW, I have no connection with One Account apart from being a customer!)

Jays

Hi wiggers

Thanks for your reply, do you think the One Account is more flexible than the First Direct or IF offset mortgages?

Jays

wiggers

I don't have direct experience of FD or IF accounts, but the One Account is very easy to operate, just like a normal bank account but with a large overdraft!

Jays

wiggers wrote:

I don't have direct experience of FD or IF accounts, but the One Account is very easy to operate, just like a normal bank account but with a large overdraft!

That is the only difference, as far as I understand, the overall effect is the same.

rrobbo

I've been with First Direct for many years and always been very happy with them, so took out an offset mortgage a few years ago. When I bought a house with my OH at the end of last year we took out joint one. I've always found First Direct very easy to use, first through the phone and now almost exclusively through the internet. I use their internet banking plus option that allows you to display the status of all of your finances, not just the First Direct entries. I have links through to my credit cards and also have entries that I fill in myself showing values of property and shares etc. This gives me a full list of all assets and liabilities and a net asset value. This can be very cheering or depressing depending upon your situation and perspective!! It can definitely work as an incentive to reduce your debt though when you see it stacked up every time that you check the figures (I check most days simply to keep an eye on what's going through my credit cards).

As for the offset mortgage itself, one key feature for me is flexibility. I've got an 80% mortgage facility, which is the highest level that you can have without losing any benefits or flexibility. We're lucky enough to have enough cash to pay off over 60% of our mortgage if we wanted, so we have a 'savings' account attached to the mortgage containing over 40% of our house value. We have two separate savings accounts simply because we're saving for one specific item in one pot and building up the mortgage fund in another. Both of our current accounts are also linked to the mortage and each month we have the equivalent to over 5% of the net mortgage passing through. This means that we effectively pay for a 35% mortgage but earn no interest (on which I would pay 40% tax). I will take out a cash ISA at the very end of each tax year - it's not cost effective now but it will be when I hopefully pay off my mortgage in the future and will have built a tax free shelter for some of my savings.

We have a piece of land that we want to develop and want to be in a position to move quickly if the opportunity arises. Knowing that we have a large mortgage facility available with immediate access and at our prevailing mortgage rate is a real help.

I've actually just fixed my offset mortgage at 5.39% for the next 3 years. I know that this isn't the best rate around but I have the luxury of being able to reduce the amount of mortgage without penalties if rates do drop.

All in all it's the flexibility that I like along with the fact that the Offset mortgage is relatively efficient for my current financial situation.

Wig

How about YBS offset @ BoE + 0.45%

That looks like an excellent mortgage! currently 5.2% and that beats from what I've seen normal SVRs for Repayment mortgages. ????

Is the YBS a great offer or can it be beaten somehow?

jamesd

Wig, check flexible mortgages with drawdown facility. Those effectively offer offsetting at lower interest cost, with a bit more hassle and time to withdraw the money.