Offset Mortgages -- the Numbers

alexandlee

Just bear in mind when using a lenders own offset mortgage guide (such as IF) they are only comparing their own products.
e.g If you use the IF guide and plug in that you have savings of say £20k, or you want to overpay by £100pm. The guide may say you will save x years or £y interest compared to non offsetting. But this is only comparing their own offset schemes. What you have to take into account is that the offset scheme is likely to have a higher rate of interest. The obvious exception to this at present is 1st Direct, who have had mkt leading rates as well as offset, hence the enormous volumes of applications they are receiving.

UK007BullDog

When choosing an Offset mortgage make sure it is on a FIXED rate or on the BANK OF ENGLAND TRACKER rate.

Do not take on the banks own SVR tracker which means they do not track the Bank of England, or lets put it this way, they will if going up, but not going down, they can do what they want as some have already found out to their detriment, the rates went up when the BOE lowered theirs.

Make sure you read all of the documents! Also ensure you know what happens to any reserves you take on and what rates and type of tracker they will be on. Otherwise you could find out that the reserve you requested will cost you dearly.

cb101

chas2008

I wonder if I am misunderstanding your question but I have an IF offset mortgage and manage it online. When I log on to my plan it shows me how much interest I have saved since I've had the mortgage and the "projected term reduction"

regards
C

Bernie

...from our Offset Mortgage with IF.

I have not posted on this thread for a long while. A few years back, the wife and I were in the fortunate position of having sufficient funds to pay for our new home outright - but it would require us to cash in our painstakingly built up pair of ISA.

In our late 50's, we had cashed out of nearly all our various investments and, since we were both still working for a few more years, wanted to have all our cash end up in ISA to keep the government's sticky fingers off it when we retired.

The IF Offset was just the thing for us, we "parked" both the ISA against the mortgage and, with other savings, the mortgage was fully offset from the start.

After a while, after some other investments paid out and the wife's redundancy payment, we pulled her ISA out of the offset and back into the real world. A couple of years later, we've built up enough cash to now extract my ISA too.

Both ISA are now transferred into high paying accounts (Lloyds 6.5% Fixed rate and Ruffler 6.25%) with the original 10 years of investment intact and earning full tax-free interest.

For us, the IF Offset has been an excellent experience. Over the rest of our lives, the full tax-free interest they're earning will handsomely repay the £400 arrangement fee.

Eat your heart out Gordon!

:beer:

jamesd

Bernie, congratulations on a good plan, well executed. And on keeping the government away from as much of your money as possible!

Bernie

jamesd wrote: »

Bernie, congratulations on a good plan, well executed. And on keeping the government away from as much of your money as possible!

Thank you too - we only hope others are able to exploit this aspect of Offset Mortgages to hold onto their hard-won ISA stakes.

I should also add, we also wanted to move on our ISA because of the £35K FSA protection thing.

...and here's the laugh! We've just opened two new ISA with IF in the offset to start the whole thing off all over again!!

:beer:

cb101

Bernie,

I wonder if I could ask you a couple of questions about how you managed your offset motrgage as I'm not convinced I'm doing mine properly.

When you were completely offset were you still paying off your monthly payments on the mortgage and then as the mortgage balance reduces transferring your "excess" offset savings outside to another interest paying account?

Were you able to transfer just 'part 'of your ISA out from your offset into an outside ISA or do you have transfer the lot? I had transferred a few different ISAs into one IF ISA and was wondering how to move it back out eventually.

Hope that makes sense
Thanks
C

medic1978

Bernie- or anyone else

Is it not simpler to get the best offset rate and then get the best ISA rate, possibly separately to the offset?

That way, the ISA is free to move anywhere to keep the best rates and the interest you gain in the ISA is the same as interest 'saved' by keeping it with the offset?

e.g 100,000 offset mortgage and 10,000 ISA in same pot- you pay interest on 90,000
vs
100,000 mortgage with best provider- could be offset. Pay interest on 100,000
10,000 in the best paying ISA- gain interest on 10,000
therefore net effect as good as 1st scenario (unless mortgage rate higher than ISA)

Bernie

cb101 wrote: »

Bernie,
When you were completely offset were you still paying off your monthly payments on the mortgage and then as the mortgage balance reduces transferring your "excess" offset savings outside to another interest paying account?

Were you able to transfer just 'part 'of your ISA out from your offset into an outside ISA or do you have transfer the lot? I had transferred a few different ISAs into one IF ISA and was wondering how to move it back out eventually.

Yep! That was the original plan - as the mortgage was paid down, we intended to move the surplus we saw each month (from the mortgage going down and other funds going in) to a high interest account at ICICI.

However, to my surprise, the surplus generated interest in the ISA! We expected IF to pay interest in the offset current account or the offset deposit account. As the interest was compounding in the ISAs, we let the surplus build in IF until we could transfer them out.

Moved hers first a while back and mine this week.

We still have ISAs with IF since we can transfer the full £3600 each every year, from our deposit account and wait until we can put enough other cash into IF to allow them to be transferred out.

Don't tell Gordon!.....

:beer:

Bernie

medic1978 wrote: »

Bernie- or anyone else

Is it not simpler to get the best offset rate and then get the best ISA rate, possibly separately to the offset?

That way, the ISA is free to move anywhere to keep the best rates and the interest you gain in the ISA is the same as interest 'saved' by keeping it with the offset?

e.g 100,000 offset mortgage and 10,000 ISA in same pot- you pay interest on 90,000
vs
100,000 mortgage with best provider- could be offset. Pay interest on 100,000
10,000 in the best paying ISA- gain interest on 10,000
therefore net effect as good as 1st scenario (unless mortgage rate higher than ISA)

I think you missed the main point of what we were trying to do - we had the full amount stashed in each ISA and, to buy our present house, would have needed to cash them in. We'd spent eleven years building them up, a tidy joint sum free of tax until we need (or want) to spend it.

The IF offset mortgage enabled us to "park up" the ISAs against the mortgage until other funds came along to replace them.

Eleven years (times two people worth) of ISA deposits retaining their tax-free status... have you factored that into your sums? We were not trying to get more interest at this time, we just wanted to keep the ISAs going - which we have!

Every month, the ISAs compound and build the sum ring-fenced from Grasping Gordon.

...warms the cockles of my heart every month!!!!

:beer: