Offset Mortgages -- the Numbers

Retro23

I'm a little confused too. I have an ofset mortgage from Egg taken out a couple of years ago a month after a friend, both with the same lender, I have some savings so went for an offset mortgage with them which gave me a discount rate at the start but my friend not having any savings just went for their standard variable rate mortgage again with the same discount rate for the same dsicounted period and we both have the same interest rate at present of 6.24. So where am I paying more than him due to me having an offset mortgage?

I seem to remember at the time egg saying that their offset rate was the same as their standard variable rate but never thought any more of it untill reading this post.

Steve

MarkyMarkD

You are paying more than if you had a non-offset, discounted or fixed rate, mortgage with another lender.

Comparing the offset rate to a standard variable rate isn't likely to show it being more expensive, but it's not the right comparison to make.

Retro23

Thanks MarkyMarkD but I want to try and understand why I am paying more so that I know for the future. When I took my mortgage out it was discounted and offset at the same time and yeah I can see that if I took out another discounted mortgage now I would be saving money, but I want to understand how i'm paying more now? the difference between mine and my friends (i'm offset and hes not) if we are both on the same rate and got the same dscount amount period etc when we took it out 2 years ago.

I'm looking at changing again soon and I know discounted rates with the same lender are normally higher but mine is not.

Example:
If someone were to take out a mortgage with egg at the moment they could get a flexible mortgage at 6% plus a discount etc etc and should they decide they wanted it offset then they would open an offset bank account with egg and get the same deal at the same 6% but offset.

I have not included the discount rates above but before I concider another offset mortgage how would they get the extra money from me?

Steve

isfootball02

i am thinking about opening an account with oneaccount.com - did the quote and was surprised how much I could save on my mortgage - anyone got any thoughts.

MarkyMarkD

Retro23 wrote: »

Thanks MarkyMarkD but I want to try and understand why I am paying more so that I know for the future. When I took my mortgage out it was discounted and offset at the same time and yeah I can see that if I took out another discounted mortgage now I would be saving money, but I want to understand how i'm paying more now? the difference between mine and my friends (i'm offset and hes not) if we are both on the same rate and got the same dscount amount period etc when we took it out 2 years ago.

I'm looking at changing again soon and I know discounted rates with the same lender are normally higher but mine is not.

Example:
If someone were to take out a mortgage with egg at the moment they could get a flexible mortgage at 6% plus a discount etc etc and should they decide they wanted it offset then they would open an offset bank account with egg and get the same deal at the same 6% but offset.

I have not included the discount rates above but before I concider another offset mortgage how would they get the extra money from me?

Steve

They clearly aren't getting any more money out of you compared to your friend. But your friend could have a FAR cheaper non-offset mortgage elsewhere. Your friend's mortgage is not the best comparison to make, as they don't have a moneysaving mortgage. Does that help?

MarkyMarkD

isfootball02 wrote: »

i am thinking about opening an account with oneaccount.com - did the quote and was surprised how much I could save on my mortgage - anyone got any thoughts.

Yes. Forget their quote and use the offset mortgage calculator which is at the start of this thread. Work out what the REAL benefit of the one account is to you.

zarjaz_2

I have an Abbey Flexible Plus Tracker (Base rate + 0.49%). This lets me offset savings of £35000 on my outstanding mortgage of £95k. I'm a higher rate tax payer.

Question: with Barclays mini-cash ISA paying 6.5%, would I be better taking my savings from the offset "pot" with Abbey and putting £3k into Barclays?

My wife pays lower rate tax. Would we be better putting
£3k for her into the ISA, or leaving it in the offset?

Thanks for any help.

Gary

jamesd

isfootball02, you can save so much by overpaying because their interest rate is very high. Avoid them like the plague unless you must have the current account feature. Martin's mortgage guides also specifically recommend against them, for this reason.

For a more decent deal look for offset mortgages from other vendors.

If you don't need the offset account and can accept paying more and withdrawing only a few times a year, go with a normal flexible mortgage with drawdown facility and save yourself another 0.25% in interest rate.

To save even more, go with an interest only mortgage and stick the difference between repayment and interest only in a cash ISA. Those currently pay more than the mortgage interest costs, so you make money by not paying more than the interest.

Intelligent Finance has an interesting mortgage where you can offset with cash ISAs, so when the mortgage rates are higher than ISA rates you offset and when the ISAs pay more, you put the money in the best paying ISA, so you win whatever happens. You'll still pay the small premium for an offset mortgage but the ability to win either way may make it worthwhile unless you're using the ISA allowance for stocks and shares already.

zarjaz, yes, you're better moving the money into the ISA if you aren't already using your ISA allowance. This applies whenever the ISA rate is above the mortgage rate. Since the ISA is tax free it doesn't matter whose ISA account it's in. For a normal taxable savings account it would be better to use hers if the after tax rate is above the mortgage rate - it is for some of the regular saver accounts which you could open in her name. If you're not using your ISA limits now you can start to shift 6000 a tax year into them, 3000 for each of you. You might want to consider that IF mortgage and interest only for your next remortgage as well.

zarjaz_2

JamesD, many thanks. Your comment reinforced my own thoughts, so will shift £6k for this year, then £6k at start of new tax year, into Barclays ISA at 6.5%.

Bernie

zarjaz wrote: »

JamesD, many thanks. Your comment reinforced my own thoughts, so will shift £6k for this year, then £6k at start of new tax year, into Barclays ISA at 6.5%.

...and of course, if your mortgage interest rate rises higher than the Barclays ISA rate, you transfer the Barclays ISA back to offset your mortgage!

I am with IF with every offset option employed. For the years when you cannot afford to move your £6,000 (£3,000 each) out of your offset, ie to another ISA provider with a higher interest rate, use an internal one (IF for me) and transfer cash from your offset deposit into the offset ISA thus ensuring you use your allowance every year.

Offsetting has allowed my wife and I to preserve our ISAs and continue to build the amount held inside them while we gradually pay down the mortgage. As each ISA can be removed from the offset, we move it out to a better paying provider.