Offset Mortgages -- the Numbers

handful

The general consensus on offsets seems to be that they generally offer an uncompetitive rate compared to standard mortgages. This isn't the case with the First Direct 5.95% 3 year deal as it is the best rate around at the moment and their variable rate is also a very competitive 6.0%.

I think the attraction to some people would be that any money saved comes off the mortgage rather than getting added to savings which tend (in my case anyway) to get spent to avoid borrowing again. Bit of a catch 22 really but I confess to be sorely tempted to lump my 113k repayment and 60k interest only into this deal as an all repayment and when the under performing endowments start to pay out in 18 months I can wack them in to a savings account offset some of the losses. Am I seeing this right? Any opinions would be gratefully received. (I also have a quite a large amount coming and going every month)

missymouse

as i have said before on this thread i am delighted with my FD mortgage. I can see online each month what is happening and we got a really good rate for 5 years. We tend to be undisciplined about savings and had sums of money lying around in our accounts so it suits us.

OverlandLandy

jamesd wrote: »

gil13, that's one of the typical sort that completely ignores how much interest you're losing in the external savings account your money would otherwise be in. Just talks about the mortgage piece instead of the whole picture.

Most stories about overpaying mortgages have the same flaw of ignoring the interest loss on savings.

As ever it's a balance. Savings seldom attract as much interest as you can save (but there are some exceptions)

An offset is OK if:
1. you are good at not 'over spending'... ie drawing on your 'reserve pot'...
2. you do not want to 'lock away' your savings in an Isa. (you might want to buy and sell a few shares in a short period of time, for example, so may need some cash to fund the purchase - depending on the accounting period etc...)
3. the set up fees and tracker rates should be as close as possible to the 'Standard rate'. Or you may have used your ISA allowance already.
4. you will 'accumulate' £££ that you can offset
5. you want to simplify your tax return - ie NO savings to declare
6. you want to use the tax advantage if you pay high rate tax for your mortgage and not give it to HMRC.
7 you can forsee a time when you will be 100% offset (savings = mortgage) so that 100% of your payments are 'capital repayments' (you can than also start regular savings in an ISA using any 'excess' each month).
8. you compare it to the best rates around to meet your intended time-frames and needs (eg moving to another house, having a year out of work, depositing a lump sum, buying a new car etc.. etc....)

I have had a repayment mortgage, and I now have an offset. For me the Offset wins hands down as I like to see the 'Interest saved' figure set against my balance each day. As my offset balance increases, relative to the total Mortgage balance, the interest saved increases and the same pre-set monthly payment goes more and more into reducing the outstanding capital...which increases the effectiveness of the offset balance...etc...etc..etc..

I 'set' levels in my 'current account' and my 'savings pot' and if I'm above the set levels I move money into my savings pot.....then I will make a 'capital repayment/part redemption' against the Mortgage balance. Each time I do this the amount of money that I can 'draw back' (like a pre-agreed overdraft) also increases....so its a flexible system. However it's not for everyone.

badm88n

Some very good offset rates coming out now:

• Newcastle has just launched a five-year fixed rate offset at 5.60%
• Scottish Widows Bank offset three-year tracker at 0.75 percentage points above the UK base rate - this means the current pay rate is 5.75%

Both for loans up to 75% of the property's value, but do command a hefty arrangement fee. See following link for more info:

http://money.uk.msn.com/guides/product-reviews/article.aspx?cp-documentid=9229250

May help someone

jamesd

handful, if you want to lock your money away you could always consider lending at Zopa. You're likely to be able to achieve around 9% after fee and bad debt allowance, before tax, if you don't want to monitor it very much. Since your money is locked in until it's repaid by the borrowers each month you can't really get at it quickly.

OverlandLady, yes, there are some advantages to offset accounts.

ali99

We are thinking of going with the Woolwich .99% above base rate for lifetime of mortgage offset.
Does anyone have this mortgage and could tell me what the internet access is like - I read elsewhere on this site that it was really poor, but I don't know if this is a general scenario or was just a problem specific to the person posting.
Does anyone have a spreadsheet I could use to put in what I have in my linked accounts each day to work out my mortgage savings each month, I want to be able to see how much I am benefitting.
Thank you for your help
Ali

handful

jamesd wrote: »

handful, if you want to lock your money away you could always consider lending at Zopa. You're likely to be able to achieve around 9% after fee and bad debt allowance, before tax, if you don't want to monitor it very much. Since your money is locked in until it's repaid by the borrowers each month you can't really get at it quickly.

OverlandLady, yes, there are some advantages to offset accounts.

Thanks jamesd, never heard pf that but I will bear it in mind when my endowments mature. I would normally be very cautious about this kind of thing but presumably Zopa is a well established idea?

eira

Had to stay with Abbey due to my credit rating after divorce but regularly reviewed products on offer.Had to go interest free as my income was too variable and at least I could afford the interest only even though it meant that I was effectively renting rather than buying. About 2/3 years ago I got a lifetime tracker at 0.59 above Bank of England base rate from Abbey, the arrangement fee was nominal.

For someone in my position its the best product ever. I overpay my mortgage but it goes into the savings pot- I can still draw on the funds in an emergency and it isn't tied up in the house. There's less than £4000 in the account but it has reduced the mortgage term albeit by a small amount. Because it's online I can take money in and out/check the balances and the psychological boost is fantastic. Not a product for everyone maybe but it's perfect for someone in my position. Also I have to say that although I am 'stuck' with Abbey I have found the service excellent (on the mortgage front anyway)

donmac539

I have an offset mortgage with First Direct. I know the idea is to keep as much money in the bank offsetting for as long as possible each month.

My question is this will there be any benefit if I pay my council tax in 6 month arrears (£135 per month) and my water rates (£90 per month) also 6 months in arrears and pay for all my shopping and petrol etc on credit card (payed off in full each month)? Also would a cashback credit card be of any benefit in this case?

Thanks for any advice.......

Locoblade

Anything you can do to leave money in a linked account for longer will help, as the interest on your mortgage is calculated daily, offset by any funds in those accounts on that day. Certainly shopping / petrol payment can be deferred so the money only comes out of your account at the end of each month to pay the card off, thus most of your wages sit in the account for as long a time as possible offsetting the mortgage. Obviously you need to pay the full credit card amount each month so you don't pay interest otherwise you'll lose out overall, unless you get a 0% card I guess, in which case you could pay the minimum each month and then only pay off the full amount at the end of the 0% period.

There's more tricks you can do (have a search for "stoozing" on this forum for example) if you have the inclination, and have a play with the FD offset calculator adding in various average monthly current account balances to see how much difference it would make.