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Offset Mortgages -- the Numbers
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Comments
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...If you opt for an offset account, ALL your cash deposited such as your £65K lumpsump, your £600/month savings etc will save you paying interest on the mortgage.
If you were with Intelligent Finance (my own particular choice), your £65K savings and £4.5K cashflow through each month would result in you approximately paying a £35K-ish mortgage (£105K - £65K - £5K).
The One account looks at the lot in a single basket account.
:beer:“When I was a boy of fourteen, my father was so ignorant I could hardly stand to have the old man around.
But when I got to be twenty one, I was astonished at how much he had learned in seven years.”
Mark Twain0 -
I have read all through this post and an offset seems good for me, but would someone please confirm for me if it is indeed a good way to go?
My Circumstances are.
£85k Mortgage (nationwide 4.39% expires June) Allows over payment of £500 penalty free and reduces term or monthly payment, your choice.
12yrs remaining.
£85k in savings. made up of.
£35k in stocks (isas & peps)
£17k Shares
£33k in Bank account (redundancy money) ING at moment Paying 4.75% in wifes name as she is a non tax payer.
I am now earning alot less in my new job, and cannot afford at all the payments for the mortgage which is £750 pm. So the "savings" (ING) are being used to cover the monthly mortgage at the moment.
If i throw it all in an offset, then the monthly payment for mortgage would be minimal or nothing at all, as the mortgage will effectivly be paid off.
As the £85k Invested is unlikely to get to the £120kish needed to payoff the mortgage the way i am doing it at the moment, i am in a quandry, as i dont really want to loose the nestegg, certainly short term anyway.
What are my options? Any pearls of wisdom are appreciated.
Mike0 -
At the moment, you are earning more interest on the savings than you are paying on the mortgage. Offsetting will therefore cost you money.
An offset will have a higher interest rate than a normal mortgage. As long as your wife's tax status continues as it is, I can't see that offset will save you money.
I would suggest that you switch to a new Nationwide mortgage product when your term ends. The rate will definitely be higher, as rates have risen, but you WILL be able to earn a higher rate in your wife's name than you will have to pay.
You should move your redundancy money out of ING as you can earn at least 1% more on the money quite easily (e.g. A&L Direct Saver pays 5.80% AER and you can have the interest paid monthly to your current account to assist in paying your mortgage).0 -
Cheers Mark i will look into that idea, i never thought of it that way.
Mike0 -
gibo888
If you go for your next mortgage with the NATIONWIDE haggle over the arrangement fee!
My mate at work was going to be charged an arrangement fee that outweighed the benefit of low rate he was going to be offered. After stating he was going elsewhere - the Halifax I think - they relented and offered him and extension for another 2 years at a slightly higher rate. A slightly higher rate cost him £200 over the year versus a £500 arrangement fee!Still looking :search: for the next saving!
Thanks MSE!:beer:0 -
MarkyMarkD wrote:An offset will have a higher interest rate than a normal mortgage.
The Bank of England base rate is currently 5.25% & the Halifax standard variable mortgage rate is 7.25%. The Halifax s.v. rate is the one normally used as the 'bench mark' for all other mortgages.
I have a Newcastle Building Society Offset/Tracker (Base Rate + 0.5%
For Life) Mortgage so the current interest rate will be 5.75%. I am paying money into the offset account each month so that when the mortgage ends
in six & a half years time,the money I have saved will make up the shortfall in
the endowment policies.
So there is no reason for an offset mortgage have a higher rate than a normal mortgage, ie. over 7.25% at current interest rates.0 -
Thomas Crown, you can't compare it easily at Newcastle Building Society because they don't even offer a lifetime tracker without offset to compare it with.
The typical situation where both are available is the Woolwich one, where the lifetime tracker is at Barclays base rate +0.23 (5.48%) and the offset version at +0.48% (5.73%). 0.25% more for the offset feature.
With NS&I's cash Direct ISA at 5.8% overpaying is also the more expensive way to go for those with competitive mortgages and unused cash ISA allowance. You lose more in lost ISA interest than you save in reduced mortgage interest.0 -
jamesd wrote:The typical situation where both are available is the Woolwich one, where the lifetime tracker is at Barclays base rate +0.23 (5.48%) and the offset version at +0.48% (5.73%). 0.25% more for the offset feature.
jamesd, I was actually responding to MarkyMarkD's comment that ''An offset will have a higher rate than a normal mortgage''. I took his expression ''a normal mortgage'' to mean a Standard Variable Rate mortgage & the figures you have kindly provided back up what I said in my previous post.
You stated; Barclay's Tracker - 5.4% & the Offset - 5.73%. Therefore using the Halifax S.V. rate as the bench mark,the Barclay's Tracker is 1.85% cheaper & the Offset is 1.52% cheaper.
Thanks for providing the link to the NS&I's Cash Direct ISA @ 5.8%, I am going to take a close look at this account. Although the difference between the NSI's rate of 5.8% & the Newcastle B.S. offset rate of 5.75% is negligible it is a much better rate than the ISA products from Nationwide B.S.0 -
It's unlikely that anyone here will use normal mortage to mean SVR. It'll always mean the comparable non-offset product or some other reasonably competitively priced deal.
If you happen to have 15,000 in cash ISAs Ruffler Bank offers a still higher rate: 5.93%.0 -
Hi, first time visiting this very informative thread, but I'm afraid all these facts and figures are beyond my understanding. We have a fixed rate finishing on 31 March with Lloyds TSB. I have already approached them and their fixed rates are 5.79% to continue mtg of £146000 over 15 yrs. I have looked at taking out another fixed rate, but they all seem to be around this rate if you want a min of 5 yr fix. We bank with First Direct and they've offered us a 5.49% offset mtg fixed for 10 years and we have approx £3000 going through currect a/c each month and a small savings a/c that we could also offset. We have been with First Direct for 10 years. Your thoughts would be so helpful as I'm starting to loose sleep over this. Many thanks.0
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