Offset Mortgages -- the Numbers

millsmum

now can someone give me some advice? I have a 89k mortgate with abbey its a flexible one with 26k offset in the savings pot. I have phoned and asked them to pay the amount off and they keep advising me to leave it where it is. I am doing the right thing? should I pay it off or leave it?

I for some reason think that I would be better off with a 62K mortgage and over paying, am I right?

MarkyMarkD

No. If you think that you don't understand the point of offset.

So, why did you get an offset mortgage in the first place?

millsmum

I didn't get an offset I got a flexible mortgage, it seemed a good rate and its only now that we have some "spare" money that its in there. my husband pays 40% and his isa's are full, we don't need to get our hands on the cash, so I thought it might be better to pay off the lump and then shop around for a better deal?

DozyDoris

Thank you so much for your really quick reply, hopefully I won't loose my job, unless I get beaten to a pulp in the meantime! So I guess I'll keep it in my savings. Feel a bit more confident about posting again now! Once again many thanks!:j

MarkyMarkD

millsmum wrote: »

I didn't get an offset I got a flexible mortgage, it seemed a good rate and its only now that we have some "spare" money that its in there. my husband pays 40% and his isa's are full, we don't need to get our hands on the cash, so I thought it might be better to pay off the lump and then shop around for a better deal?

I'm more confused now than before.

In your previous post, you said you had money offset in the savings pot.

Now you are saying that you have merely over-paid on a flexible mortgage.

Which is it?

If it's the latter then it's already paid off the mortgage so I don't understand what you were asking Abbey to do.

jamesd

millsmum, they are correct to advise you that it is best to keep the money in the overpayment pot where it offsets the mortgage capital owed. That reduces your mortgage interest by exactly the same amount as taking it off the mortgage capital but gains you lots of useful flexibility for things like taking some of it back for emergency repairs or using it for repayment holidays.

Your request can only make you worse off through decreased flexibility and it's good to hear that they were reluctant to do it because it's clearly not in your best financial interest. Kudos to them for doing the right thing.

You're probably also doing the correct thing to have a flexible mortgage with overpayment pot instead of an offset mortgage, which would cost more for the way you use it to just build up a large lump sum in the pot instead of regularly paying money in and taking it out.

MarkyMarkD

I'm surprised that they offer such an option, jamesd. Why would anyone want to remove money from a flexible overpayment pot and contra it against the underlying mortgage?

My flexible mortgage is with A&L and any overpayment I make is shown as an overpayment, and is available for drawdowns, payment holidays, etc. I'd never heard of the idea of doing anything else with overpayments!

jamesd

Millsmum thought that it might be to her advantage so no harm in asking and finding out that it isn't. Beats not asking and missing an opportunity. That's what we're here for, after all.

MarkyMarkD

You are being very saintly and helpful, recently, jamesd! Well done.

And cheers, millsmum, for coming back to the thread, finding time to thank jamesd, but ignoring my questions attempting to clarify what your point was. :@

Dan_Collins_2

I have just sat down with a client who was hell bent on an offset mortgage. Once I sat down with her and found out a bit about what else she wanted and needed we came up with this. Current mortgage £63k lump sum of 37k that she planned to offset, she wanted to get rid of the mortgage asap at the same time fixing for 5 years.

The offset method meant (Approx figs now) she paid the mortgage off in 10 years or so and paid about 72k back. Monthly payment £540ish over 15 years. I suggested she make a lump sum taking the loan to 28k and making over payment. nationwide fee free 5 year fix, up to £500 a month over payments. This means payments of 250ish and with her planned over payments she will be mortgage free in just over 7 years and only pays back 45k again ish!

Offset serves a purpose but I do think that we get a new gimmick mortgage everynow and then and ppl get told by the banks etc that this is the best thing since sliced bread.

However everybody is different and has different needs. Mine is learning to spell LOL ;-)!