Offset Mortgages -- the Numbers

Gambler

I'm expecting a call back from FD in the next week about a mortgage and just trying to get straight in my head how much I need to borrow.

I'd like to borrow £120K over 20 years on a £250K property so no problem with the LTV. Using the FD calculator

£120K over 20 years with nil offset

Repayment £803.61
Interest Only £515.29


I'm also thinking of borrowing £140K but leaving £20K as offset so I can then use it in the future if I need to.

£140K over 20 years with £20K offset

Repayment £853.87
Interest Only £515.29

With FD they take the interest payment via DD and you have to set up a standing order for the repayment amount. My question is how much do I repay? Would it be the same amount regardless which option I take? Obviously the repayment figures are different but I don't plan on paying the £20K back until the end of the term, unless of course I do use some before then.

Thanks

jamesd

The repayment figure is higher because it has to pay back that extra 20,000 you're borrowing to put into the offset account. First Direct will probably expect you to do that. The effect for you is an automatic overpayment of 853.87-803.61 every month and you clearing the mortgage whenever the balance reaches that 20k, unless you decide that you need to keep the 20k available and let the mortgage run for longer.

You could increase the term to lower the higher borrowing repayment amount to match the 803.61 or you could go interest only but set up a regular overpayment so that the monthly payment is 803.61, but you would need to adjust this to keep the extra amount the same when interest rates change.

Increasing the term is probably the easiest way, then you can clear it with the 20k if you don't use it, or use it and replace it; else you can go up to the full longer term if you use it but haven't replaced it.

Or you could do a split of 120k repayment and 20k interest only. This would leave the repayment amount at 803.61 but risks leaving you with the 20k owed at the tend of the term if you use it.

thenap80

Of the First Direct mortgage offers, which would be best for me given the below...

I want to pay off asap.
Can keep in the account about £1600 a month
I have £91K left on my mortgage.
Currently on two year fixed with CandG which ends in two weeks.
I like the idea of offset
Like to overpay

...I can see FD have 2 and 10 year deals. Is there goinmg to be much difference? If I go for the 10 year one, will I be allowed to pay it all off in less than that - say 7 years? If I do, will I be punished in anyway?!

All help will be warmly appreciated as I do not know much about mortgages!

Barry

thenap80

I notice too from FD website that the 5 year deal has vanished. Is this correct or am I blind?

LostSocks

thenap80 wrote: »

Of the First Direct mortgage offers, which would be best for me given the below...

I want to pay off asap.
Can keep in the account about £1600 a month
I have £91K left on my mortgage.
Currently on two year fixed with CandG which ends in two weeks.
I like the idea of offset
Like to overpay

...I can see FD have 2 and 10 year deals. Is there goinmg to be much difference? If I go for the 10 year one, will I be allowed to pay it all off in less than that - say 7 years? If I do, will I be punished in anyway?!

All help will be warmly appreciated as I do not know much about mortgages!

Barry

You can overpay and I was told that you will have redemption fees on the original amount if you pay it off before the fixed rate period, but if you keep the account open until end of the fixed period, then you won't get charged a redemption fee.

LostSocks

thenap80 wrote: »

I notice too from FD website that the 5 year deal has vanished. Is this correct or am I blind?

Yes it has been pulled. There is a thread on here about it somewhere.

diluvsdiscounts

I don't know if I'm understanding this offset mortgage thing correctly.
I've looked at the oneaccount and done the calculation with my figures and the mortgage shrinker says that instead of 18years that we have left at the moment we could finish repaying in 7years.That seems a bit odd to me.
If we paid say £12k into the account am I correct in thinking that this would not earn any interest for the next 7 years but instead would come off the mortgage?
I can't believe that by not paying any extra we could shrink our mortgage by 11 years OR have I got it completely wrong?(probably)

thenap80

2 year fixed rate offset Mortgage

4.75% for 2 years, reverting to our standard variable rate for the remaining term, currently 6.25%.
The overall cost for comparison is 6.3% APR.
(offset Mortgage arrangement fee £999 / fixed offset Mortgage booking fee of £499, maximum loan size £300,000)
2 year fixed rate offset Mortgage

5.25% for 2 years, reverting to our standard variable rate for the remaining term, currently 6.25%.
The overall cost for comparison is 6.2% APR.
(no arrangement fee / fixed offset Mortgage booking fee of £99)


Of the two above FD offers, which would be better suited to me. One has 499 arrangement fee. The other £99.
My maths isnt that strong but here are the numbers...
Have a 91K mortgage left with CandG, I want to leave as much money in the account as poss each month. That will be about £1700 left in the account each month (minus whatever the monthly repayment is obviosly). I reckon I could pay off my mortgage within 7 years. Would I be better suited to choosing the 99pound arrangement fee with higher interest rate. Or the other one at 499 but lower interest rate

Kind Regards
Barry

jamesd

diluvsdiscounts, you've got it wrong. You should be looking at the total you have to pay, not the reduction interest. If you look at reduction in interest the mortgage that costs you the most will have the biggest reduction!

Get your monthly payment amount from the One account calculator and then look at other mortgages. Use the Egg mortgage calculator to compare the deals, making sure that the total monthly payment is the same in all cases. See One Account or Barclays Offset Tracker for a typical discussion of how the One Account is usually significantly more expensive if it takes more than a few years to clear the mortgage completely.

JohnG

Hi,

We are looking forward :j to paying of our "Offset" mortgage in the next month or so but can't help but wonder if there are better reasons to keep the offset alive by leaving a minimal amount like £5 oustanding? That's assuming that was actually possible?

I've tried to find other threads on the subject and notice some people are doing this mainly as it gives them access to their offset funds in an emergency but we're keen to know if this would be a daft thing to do?

We're also concerned that if we rid ourselves of our mortgage, and because our combined income is so limited, we would not be able to get another mortgage if we needed to in the future, so by keeping this one open it would give us more options for either a possible house conversion or moving home (highly unlikely though it is )?

I confirm that we will be sitting down with the C&G soon to ask these questions but don't think we can be sure of getting an impartial answers (Not that I have any issues with C&G).

Any thoughts?

Cheers
John & Clare