Offset Mortgages -- the Numbers

jamesd

Your reasons for keeping it make sense. How much you have to leave depends on the lender.

It's not daft to keep the funds available. Far from it, it's very prudent. It gives you extra options at little to no cost and may well be the cheapest way to borrow money, since you'd be borrowing at mortgage rate.

busy_b

I've raised my offset query on other threads and have an on-going dilemma. (Sorry to bore anyone with repeating myself).

I have switched to Barclays offset interest only and placed 36k savings against 36k mortgage. (I am therefore £430 per month better off as I have chose to leave the savings offsetting the mortgage for the remaining term of 10 years).

I can pay off in full when I want or just chip away at it. In my head I am mortgage free (even though technically I'm not). I make no monthly repayments and just forget that I have a mortgage.

I constantly worry if I have done the right thing. (I do have other Isa savings and have no real need to touch the 36k at the moment but I like the reassurance that I can access it if I really have to).

Does what I have done make sense or should I have just paid it all off in one go and have done OR should I have continued with the mortgage and placed the 36k in savings????

Any comments appreciated.

moorhen_2

Hi all,
I've been using comparison sites & best buy tables & spoken to a broker & now that I'm overwhelmed I thought I'd ask you good folk what you think:

We have 18 years & 132,000 left on our mortgage, and we now need to remortgage as our discounted rate is about to end.
We have about 50000 cash right now, but we'll be needing that in about 8 months to pay for an extension. We also have cash ISAs, & a house abroad that we want to sell.
I have very little income but my other half is a higher rate tax payer.

So it seems to me that it would be good to make the most of the 50K while we have it, and the 2nd house proceeds when we get them. This suggests a flexible or offset mortgage. Especially as I could "stooze" as I regularly get 0% offers from my credit card.

But the flexible mortgages I've looked at so far only allow smaller repayments or offer payment holidays rather than large sums back.
While the offset mortgages have higher rates than others, making me wonder if we'll offset with enough cash to make up for the higher rates.
Realistically we'd probably not want to move mortgage again for 5 yrs

Current faves:
Scottish Widows tracker with offset features 5.79% (BoE + 0.54) with fees of approx £250
Darlington BS tracker (code 33 A1) with no useful flexible/offset features 5.39 % with fees of approx £800

I've looked at plenty more & seen none better over 5 years, but I know there's 100s I haven't looked at. All (constructive!) comments hugely welcome.

PS: This is an amazing website!

thenap80

I would so appreciate some knowledgeable personas advice on this one....

I earn 32K a year and want to pay off my, at present, 90K mortgage as soon as possible. I do not have much savings because in the past I have always used any extra cash as an overpayment on my current mortgage. In therory then, much of my wage each month is left over. Does this make me ideal for an offest mortgage. Despite not having any initial lump sum to act as the offset part?!?!


Secondly, which sounds a better deal to you, given that I want to pay off the debt asap, in say 10 years hopefully or less...

Direct Line 5yrs 5.29% fixed with 499fee then 6.75% for remainder.
First Direct 2yrs 4.75% fixed offset 499fee then 6.25 for remainder
First Direct 2yrs 5.25% fixed offset 99fee then 6.25%


The last two are similar but for the lower admin fee of only 88pounds for the last one.

All help would be warmly welcomed!!!

Barry

jamesd

busy b, if savings are paying more after tax than your mortgage interest rate you're better off with the money in a savings account and using interest from the savings to pay the mortgage interest and have a bit left over. Just move from savings account to offset account depending on which rate is higher at the time. Regular saver accounts paying more than 7% before tax are available at the moment so you can probably benefit by using them. Also term deposits paying over 6% fixed before tax for a year or more are available. It's likely that using those accounts will be better than using the offset account but I can't say for certain because I don't know your mortgage interest rate.

You might also take a look at the Blackrock Merrill Lynch UK Absolute Alpha fund, which has very consistent performance and grew by 9% over the last year in spite of the market troubles. Not guaranteed not to lose money, just doing a good job of it. Since it pays in capital growth not interest it's tax free even outside a stocks and shares ISA if you're not using your capital gains tax allowance for anything else. A potentially interesting option for some of the money.

moorhen, one of these may be interesting, Barclays certainly does offer the ability to draw lots of money:

• Cumberland Building Society can offset one current account and one savings account. Remortgage 5.84% (BoE+0.59%) up to 90% LTV with 375 fee, 500 Pound ERC for12 months.
• Barclays offset mortgage lets you offset with up to four current accounts and twelve savings accounts. The current interest rate is 6.2% (Barclays base rate (danger, may not track BoE rate!) +0.69%) with a 595 fee and maximum 80% LTV. No ERC.
• Intelligent Finance, often large fee, ERC but can offset cash ISA as well as current account and savings, so you can keep the ISA tax benefit after the mortgage ends. Does fixed rate offset as well as tracker. Remortgage offers: 6.24% (BoE+0.74%) 75% LTV tracker has fee of 799. 85% LTV same interest rate, fee rises to 1999. Up to 90% (can do for 85% also) 6.34% (BoE+0.84%) with 999 fee and ERC or 6.85% (BoE+1.35%) with 999 fee and no ERC or 6.14% (BoE+0.64%) with 1499 fee and ERC. One and two year fixes for 5.79 to 6.29% at 90% LTV.

thenap80, investing is the fastest way to pay off the mortgage if the investing goes well or OK. You can pick a range of investments to give whatever risk level you like, have a look at the Blackrock fund I mentioned earlier for an example. The mortgage rates you're getting are lower than the after or tax free rates from saving and ISA accounts so using offsetting doesn't currently seem like a good idea for you since it loses you money compared to savings accounts. That may change in the future. When does your current mortgage deal end? Waiting for six months if you're not paying SVR is probably a good idea because it seems likely that interest rates will drop.

MarkyMarkD

thenap80 wrote: »

Direct Line 5yrs 5.29% fixed with 499fee then 6.75% for remainder.
First Direct 2yrs 4.75% fixed offset 499fee then 6.25 for remainder
First Direct 2yrs 5.25% fixed offset 99fee then 6.25%


The last two are similar but for the lower admin fee of only 88pounds for the last one.

All help would be warmly welcomed!!!

Barry

The fees on the FD 4.75% deal are £1,498, not £499. It's not worth paying an extra £1,399 in fees to save £900 in interest (0.50% x 2 years x £90k) so that product doesn't suit you.

moorhen_2

jamesd,

Thanks for those. I looked at them but it seems the Scottish Widows deal (currently 5.79% + approx £250 fees) is still better so I've decided to go for it, so fingers crossed all goes well. It's quite a basic offset: just a "Mortgage Deposit Account" operated by phone & linked to any current account anywhere, which suits us as we didn't fancy changing current a/cs.

Cheers for the extra options though!

thenap80

I am a key worker and borrowed 50K to buy my first house. They do not own the house - it was just a loan! BUT...One Account say that I am not eligible for their offset mortgage.

Would I be eligible for the First Direct one. Speaking to my FA it appears not. I want to get rid of the 50K loan if thats the case since I seem now to be missing out on the best deals (FD and 1Account)


Any suggestions or views that may help!? Apparently even if I taken a bigger loan to pay off the loan, I would still not be eligible for certain products cos of a "second loan" or something. Is this right!??!!?

magicdogsbrain

I like the N&P Offset mortgage - Base rate tracker +0.59% for term
Reservtion free is 599 but you dont need to keep remortgaging
with this rate.

You have to have their current account - and you can also have a savings account that is offset (in addition to the current account).

I got it a couple of months ago - but then it was +0.44% :j

jamesd

thenap80, maybe a second charge? If the loan is paid off I expect that the charge would be removed when it's paid. Can't say without knowing more about what it is and why it is there.