Offset Mortgages -- the Numbers

MarkyMarkD

I don't understand what Bazzbo is saying, TBH.

If you have a discount with Nationwide which ends in November, then simply switch products to a new discount with Nationwide from November onwards and you won't have any increase in payments.

What's the problem?

You might have to pay a fee, but that's likely to be it.

Bazzbo

Thanks James & Mark. Nationwide have offered no discounted deal only a standard base rate @ 7.24% or a very inflexible Tracker @ 6.09 to 6.49 depending on the option. One limiting factor is my age of 51 which reduces the term to around 15 years. I am currently paying around 4.5% and £660 a month so I assume a bit of a hike is coming when the discount period finishes. I can only see the option of selling the shares or moving out. Shares are nice to have for rainy days but as Chief Sitting Bull once said
'Paradise is Today'.

Thanks again for your time.

Barry

gelderd

Hi
New to all this stuff.
Was wondering what the advice would be for my partner and me.
Current mortgage 85k outstanding. 16k in offset account. rate for savings and mortgage 6.5%. Have an ISA paying 6.21% on recommendation from this site. Would like to get the mortgage gone as soon as poss. Joint monthly income approx 2,900 - mortgage repayment 610, currently saving about 400 per month into the offset accounts.

jamesd

Bazzbo, have a chat with a mortgage broker. Not all lenders have that age limit. Get your statutory credit reports first so the broker can see what's in your credit record that might affect the mortgage deals you can get.

Also consider going for an interest only tracker mortgage and then overpaying when rates fall or your income rises.

Instead of cashing the shares in and using the capital to pay off a large mortgage lump sum you could also buy funds that produce an income instead and use that income plus gradual sales to subsidise the mortgage, while most of the money keeps growing faster than the mortgage interest rate. A fund like Invesco Perpetual Higher Income produces about 100 a month in average distributions on 40,000 invested, paid out twice a year. That would probably cover the increase in mortgage payments. If not, you could also withdraw about 100-150 a month on average from the capital and still not see it drop in total value because of the average long term growth in the fund. Don't use just this one fund - a range is good to even out performance.

Gelderd, why a 6.5% mortgage rate instead of something lower? Which mortgage do you have?

gelderd

Have a Woolwich Offset. Am looking to change now especially since the Barclays takeover as I find Barclays service poor.

Bazzbo

Thanks again James for taking the time I am very gratefull. I like all your idea's but two quick questions if I may.

a) Would any income from the fund incure income tax?

b) Is there such a thing as an offset interest only tracker? If I change to this for the 89K then offset it with say 40K but keep paying at the 89K rate would the overpayments be sufficiant to pay off the balance at the end of the term? Or would I need something else?

I know your a busy man and if you don't get time then thanks for your help thus far.

Barry

jamesd

Bazzbo, the income is taxable unless they are in a stocks and shares ISA or other tax wrapper. So one thing to do is to start moving them into a S&S ISA starting with the funds that you expect to produce the greatest income so that income becomes tax free.

Yes, there are offset interest only trackers. Most lenders that do offset mortgages will offer trackers and interest only. If you use the offset and move the capital to S&S ISAs for income plus use some of the capital you should be able to keep the overall cost to you the same or lower. Probably lower with that big an offset.

Bazzbo

Thanks again James. I will look into high yeild S&S Isas and interest only offset motgages that will allow me to use mine and the wifes allowance to convert the capital into ISAS each year.

:T
Barry

DozyDoris

Bazzbo wrote: »

Thanks again James. I will look into high yeild S&S Isas and interest only offset motgages that will allow me to use mine and the wifes allowance to convert the capital into ISAS each year.

:T
Barry

Hi there, i'm new to all this so not sure if i'm posting properly! I've an offset mortgage and my dad wants to give me some money to help pay my mortgage off (about £2500 I think) am i best leaving this in my offset savings or asking to pay it off the balance of my mortgage? I've never quite got to grips with it all!

jamesd

There's no difference in the reduction of mortgage interest from the two. The offset account would make it available for withdrawing for emergency repairs but would also presumably (don't know of a test case) mean that it would count as savings for benefits eligibility if you became unemployed, say. Paying it off the mortgage capital wouldn't count for benefits calculations.

Ask him if he has any preference and do what he prefers.