Offset Mortgages -- the Numbers

savesomething

Just wanted to say this a great forum you have here. I feel like I have learnt loads just reading the threads. So thanks!
I was hoping somebody here might be able to help me, I've searched the forums but couldn't find an answer to my question...... So here goes.......

I am looking to first-time buy with a friend. We want to have a joint offset tracker interest only (I hope that makes sense) mortgage and offset this with an individual savings/current account for each of us. Its not that we don't trust each other, we just want to keep our own savings separate! Ideally we would like to have > 95% LTV and a low arrangement fee.

Does anyone have this kind of mortgage? The mortgage advisor I spoke to told me it was impossible, which annoyed me since I think offsets are great.

I've been unable to find anything so any help would be greatly appreciated.

Thanks!

jamesd

savesomething, try a different broker. Offset mortgages with several offset accounts exist so that doesn't seem to be a problem.

sheynes

I am with Intelligent Finance and asked the same question a couple of years ago. You can have as many savings accounts as you want but only one current account. You are allowed to have incoming amounts paid into different savings "Jars" without problem.

If you can work it out between you, perhaps you could have your wages paid into different savings "Jars" and then work out how much from each of these needs to be transferred each month into the current account to pay off your different standing orders etc.

Difficult but not unworkable.

blah_blah_3

Having read the threads I have to say I'm not really sold on off setting mortgages.

My present one is a repayment which is working well.

If I were to switch are the best ones to look at?

Is the One account any good?

AloneWithStrangers

blah_blah wrote: »

If I were to switch are the best ones to look at?

Is the One account any good?

Coincidentally I was looking at the Egg website today & they've launched a new offset 3 year fixed rate at 5.39%. The fee is only £499 and I think it has free valuation & legals.

That looks like quite good value to me - certainly cheaper than my one mortgage.

jamesd

blah blah, it has an expensive interest rate so it's not a good idea unless you're able to fully repay in say two years or less or have say half of the mortgage value going into and out of your current account each month.

Can also be useful for those with unpredictable income but offset mortgages and borrowing enough to put a good initial amount into the offset account cover that case at a lower cost.

A lower interest rate mortgage deal combined with overpayments into cash and/or stocks and shares ISA accounts that pay more than the mortgage interest rate tend to be cheaper for anyone who can't repay very quickly. Stocks and shares can include corporate and government bonds so there's no need to take stock market risk if you don't want to.

thenap80

Okay, here goes...my first MSE post!

I am coming to the end of my two year fixed rate having bought my first home two years ago. Throughout that time I have liked to make overpayments, as I want to get the mortgage paid off asap.

I take home about £2000 a month and am at present paying £560 a month with a C&G mortgage.

I have done the shrinker test on The One Account website and with my small outgoings being taken into considertaion, it reckons I could pay off my £100,000 mortgage within only a few years.

Would this be possible? Instead of an offset mortgage, would it be cheaper to go with a normal repayment mortgage and make overpayments on a regular basis?

If offsets are the way forward for me, then are there any better ones than the One Account.

Many Thanks
Barry

MarkyMarkD

Hi and welcome.

As I've posted before on this thread, if you don't want the money back it's definitely cheaper to take a "standard" mortgage and simply overpay. But make sure that it's a "standard" mortgage that allows you to overpay sufficiently without penalties.

The only reason it's worth having an offset is if you need the money back at some point and can't simply remortgage at that stage - but even then if you take a sensible flexible mortgage you could draw down overpayments at that stage.

jamesd

thenap80, it's tough to be specific because we don't know what numbers you put into the One Account calculator. But unless you have at least 30%, more likely 50%, of your mortgage going into and out of your current account each month or are repaying within two years (perhaps less, it's a fees/interest tradeoff) you will probably do better with something other than the One Account current account mortgage. Sole traders with big monthly cashflows might do well from this.

There are other current account mortgages available but those are also quite expensive.

Next step is offset and that's useful if you expect to keep a large emergency fund of perhaps 20% or more of your mortgage balance in the offset account. Or if you have a large cash ISA pot that you want to offset with using one of the mortgages that allows that. But today offsetting with cash ISA money will lose you money most of the time because ISA rates are higher than competitive mortgage rates. Small businesses people with smaller monthly cash flows in and out but large annual tax bills to pay could benefit significantly from offset accounts.

If you're just paying off and won't need to do more than a possible drawdown once a year or so then a standard flexible mortgage is going to have a lower interest rate so that for the same total monthly payment you'll be able to repay more quickly and at lower cost than with the One Account.

Use the Egg mortgage calculator to compare deals and compare the total payable when comparing mortgages, not interest saved: higher interest rate mortgages produce higher interest savings even while costing you more.

Also remember that you don't have to go with 25 year terms, you can ask for anything from five years and that will set your minimum monthly payment at a higher level. This is mostly of use for mortgage deals that have say a 500 a month limit on overpayments. For those you just start with a shorter term or change to a shorter term so that the 500 is the variable part of your overpayment.

thenap80

Thanks for that advice.
I have been in touch with a random financial advisor. He quotes me deals that have £1800 costs for set up etc. Is that normal. Is there anyone to go to to get the best deal.

Would it be cheaper to stay with C&G and just change to one of there own different mortgages.? £1800 seems a bit steep or is that what is to be expected. I cant see how that is saving me money!!

Barry