Offset Mortgages -- the Numbers

jamesd

lizzo, one other point with the One Account in your case, you must "repay your borrowings by the date we agree, which will always be before your retirement". This probably makes it unsuitable for you, though there are some other providers of current account mortgages around if you really do want one of those instead of an offset or flexible mortgage.

lizzo

thanks for that vital bit of information jamesd, very helpful, so I can rule the One Account out. One less to think about. Perhaps the current account mortgage is the one for me, so that my savings help shorten the term, by reducing the interest, but once the mortgage is paid off, I get my savings back. Have I got that right? Sorry to seem thick!

lizzo

I have just re-read by last post, and I think I am hopelessly confused. I am not sure now whether I actually know what the difference is between the offset, current acc, and flexible mortgage.

jamesd

Current account mortgage: like the One Account, combined current and mortgage account.

Offset mortgage: mortgage account is different from the offset savings account. Money in the savings accounts doesn't earn interest but interest isn't paid on that amount of the mortgage. Often multiple savings accounts can be linked and some companies link cash ISA accounts, so you can offset while using/accumulating ISA allowances. Lower interest rate than current account mortgages.

Flexible mortgage: allows flexible overpaying and drawdown (withdrawing of overpayments) but withdrawing generally isn't a right as it is with a savings account, so it could be refused. Usually cheaper than both current account and offset mortgages.

Both offset and flexible mortgages can usually be had in interest only or mixed inerest only and repayment forms. Interest only with either regular overpayment or regular investing gives the greatest flexibility, since you don't need to ask to reduce the payments from repayment to interest only levels - so no risk of that being refused!

thecoolalhambra

Hi All

I have been on a fixed rate offset mortgage with Yorkshire Building Society and my fixed rate (5.24%) finished at the end of May (the fixed rate sounds high but there were no arrangement fees and i got cash back so was a really good deal).

I am now on the Standard Variable Rate which is 0.75% above BoE base rate, so i am now trying to find another fixed rate offset mortgage to remortgage my property - does anyone know of any 'good deals'!!

Also, when i originally took out the mortgage the LTV was around 90%, but as my property has now increased in value it will be more like 50% - should i inform my current lender of this? Does it make any difference?

Any advice would be appreciated.

jamesd

The changed LTV will let you get cheaper deals.

brunlea99

Hi there - I hope you can help. We're coming to the end of our fixed rate mortgage (5.29% with Nationwide). The mortgage is an interest only £92000 based upon 4 x Endowment Policies. As we had previously been advised that our policies may not mature to cover the full amount we have savings (2 x Multifund ISAs and a regular saving account) of £30000. The policies are due to mature in March 2014 - in effect leaving about 6.5 years of mortgage time left. We have monthly incomes of about £3900 after tax and before outgoings so we normally have a healthy surplus balance at the end of every month which we put into the savings account. We are looking to reduce the amount of overall interest we pay together with the reduction of the capital owed. Would an offset be good for us ? We've looked tentatively at the IF offset of 0.04 above the base rate discount for 2 years (currently 5.79%) and a couple of the First Direct fixed (6.19% and 6.49% depending on fees). Many thanks in advance.

jamesd

brunlea99, it looks as though the offset would be useful for you.

First choice for me would be making full use of your stocks and shares ISA allowances each year, offset only with money in excess of that. If you're not comfortable with using only the stocks and shares ISA then IF lets you offset cash ISA savings accounts you have with them, so you can both offset and accumulate your ISA allowances.

Given the low interest rates of a mortgage and higher returns to be expected from ISA investing it's not really worthwhile to repay the mortgage capital: you'd lose more investment returns than you save in reduced interest. If you're not yet truly happy with how to select investments within an ISA please read Ok then - How do I choose a S&S ISA.

Given your incomes it's of substantial long term value to you to use all of the ISA allowances every year for investing.

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touch

Thought I would share with you all a heads up a warning on offsets. I swear by them because i have been offsetting my CC stoozes for the last year or so. However recently in view of recent interest rate rises I decided to change my offset provider to get a better deal and they paid all the valuation and solcs fees. I did have quite a debate with their underwriters recently, because they picked up on my application and credit check that i had a large number of o's balances on CC's. I had to go through with them that i was offsetting at 0% deals and remind them that this is what offsetting is all about. Unfortunately to get the refinancing I needed, I had to repay some of my stoozes . The mge provider viewed these as impacting my ability to pay. Never mind when the remortgage is complete I will keep stoozing and offset the amounts.