Offset Mortgages -- the Numbers

hi123

if have one at 0.15% above bbe till sep 2009

Supernova

I've been thinking of selling my p*sspoor endowment and transferring the mortgage to an Abbey flexible for the last 6 years of its life.

Is it acceptable to keep the savings pot at 90-95% of the mortgage for that whole time?

wiggers

If your endowment is close to maturing then I believe the received wisdom is to let it run its course and collect the terminal bonus. In any case, I feel that this should be a seperate descision to moving your mortgage to a new vendor. Have you made a misselling claim against the endowment company? That should make up a lot of the shortfall and is best invested in reducing the capital in your mortgage, probably, depending on your tax status.

Supernova

Thanks for the reply wiggers.

The annual bonus last year was .25%!!! The terminal bonus is the thing but obviously no-one can say what FP will pay in 6 years time - most people think that a projected shortfall of £16-20K is pretty likely. If I put the potential £25K (approx) sale proceeds plus the premiums into an offset at 5.34% it will leave me £12.5K short (in a high rate savings account it's still £20K short at todays rates plus I'm a higher rate tp).

If I pay off part of the mortgage with the proceeds + premiums I believe it will leave me £14K short.

Mind you I am rubbish at maths, or at least with my assumptions sometimes.

The endowment was sold pre March 1988 by an IFA so no chance of compensation.

btw my endowment details are here if anyone is interested:

http://forums.moneysavingexpert.com/showthread.html?t=178404

pwl

My wife and I are about to apply for an IF offset, with linked current and savings accounts. I am a higher rate tax payer.

Does it make any difference, from a tax perspective, whether we open separate or joint current/savings accounts?

Thanks.

Peter

Joe_Bloggs

In general and not related to I.F. For a joint account you would get equal credit for the interest. Hence this would then be split 50:50 and taxed seperately at each of your normal taxation rates before being combined to a single amount.
If your account is offset then you don't get interest so you don't pay tax however it is divided up. The Mortgage interest rates tend to be a bit pants.
You can have Jars for this and Jars for that. You may find yourself in bit of a a pickle.
J_B.

jamesd

If your wife is a basic rate tax payer or a non-payer of tax or hasn't used her individual ISA allowance, do remember that for money in her name she can probably earn more in savings interest than you pay in mortgage interest.

For you at higher rate tax, offsetting probably is a good option for money not given to her to get that benefit.

On a different subject, there are also (non-mortgage) benefits from her having a pension plan in her own name, so you might consider asking about that in the pensions section if you haven't already done so.

pwl

Many thanks J_B and James for your helpful information.

Nubs_2

Hi All, sorry to be stupid but could I be cheeky and ask you to look at our cirumstances.

Current mortgage rate is coming to an end (5.09%). Will be 5.69% fixed for the year.
We would like to get on to an offset mortage. I went through London and Country and like me they came up with staying with current provider (so no fees involved).

The Offset rate= 5.5% + 0.75% Bank of E Tracker.
Mortgage £30,800
Savings near £20K (but we plan to also close an ISA 4K - is this sensible? Rate is v.poor)

Neither of us is a high taxpayer. I am a non tp.
Is that all you need to know? What do you think? I hope you don't mind - Thanking you in advance - Confused Nubs

wiggers

Nubs,

In comparing different strategies you need to maximise the total interest you earn in a month. (Subtract the mortgage interest from the savings interest - usually negative!) This means getting the best return on your savings (after tax) and minimising your mortgage interest. As always, though, don't forget to factor in the fees to make any changes. If you can save £570pm you will be mortgage free in a year! After that your total interest will be positive.

Mark