Offset Mortgages -- the Numbers

carebear1976

Have just read through this thread and am feeling like I may have been a little niaive when I took out my offset mortgage with St James Place (part of HBOS) two years ago.

In any case, my deal will be coming to an end in 3 months time so I would like to get organised for the next deal. It sounds like people are quite impressed with the FD product (in terns of offsets) but I'm not even sure if I should be going for an offset (from the comments I've read above).

I have a mortgage loan of £165k and savings of £30k (which I'm trying to leave intact for "emergencies". My repayment is £1400 a month although I usually repay a bit extra each month (say another £200) and I am a higher rate taxpayer.

I am trying to pay off the mortgage as soon as possible - can anyone advise me on which way to go?

Locoblade

Whack your figures into the First Direct's monthly payment calculator and see how much the £30k saves you
http://www.firstdirect.com/legals/mortgage_idd.shtml

From what you've said though, Id suspect your savings is going to save a couple of hundred a month on the repayments (or allowing an additional couple of hundred overpayment). Obviously you need to counter that with what interest you could earn on that £30k in a savings account whilst going with a conventional mortgage, but unless that money is already in ISAs its not going to be tax free, and being a higher rate tax payer obviously doesn't help either because you'll pay more tax on your interest.

Basically I think you'll find that a lot of the posts earlier in this thread are a couple of years old and worded on the presumption (correct at the time) that offset mortgages always had higher interest rates than conventional mortgages, and also assume that your savings are all held in tax free ISAs etc thus maximising their earning potential, but if like with FD the rate of the offsets are competitive compared to conventional loans anyway, then its a no brainer as far as Im concerned even if you have no savings because you're not actually paying for the offset privilege in terms of higher rates, and if nothing else your monthly earnings can be used to offset, money you otherwise generally earn sod all interest on.

carebear1976

Thanks Locoblade - very helpful. Looks like I would indeed save a couple of hundred a month.:j

I presume you can overpay with the FD offset mortgage?
I know I could just put the extra in my savings and have the same effect, but I prefer the discipline of paying one big lump sum to the mortgage each month.

Locoblade

yep you can overpay whatever you like I believe. Ive not got my FD mortgage yet so can't be sure, but from what I understand if you pay into the mortgage pot then that shows as capital coming off your mortgage, whereas if you put it into an offset savings pot it obviously doesn't reduce the capital but has the same effect as you say, because you'll end up paying interest on the same overall amount at the end of the day.

I believe you can withdraw that overpaid money again from whichever pot you've paid into, even from the mortgage pot, and can indeed withdraw all the capital paid up to the amount you borrowed originally, so it doesn't seem to make any difference where you overpay each month, basically the only thing you're tied into doing is paying the interest every month.

jamesd

handful wrote: »

I would normally be very cautious about this kind of thing but presumably Zopa is a well established idea?

It's been around for a few years. The main caution is to ensure that you set things up so that you can't lend too much to one person. That's easy to arrange, there's a maximum exposure per borrower setting. That way you won't lose much per person as people default over time and it'll be covered by the interest from the others - there's a bad debt allowance that's automatically included if you use the fast way to set the interest rate that you want.

At the moment their record is around 0.5% bad debt, which isn't unduly painful when you're lending with an allowance for it that varies from 0.6% to 3.8%. At least one borrower has died and at least one borrowed and left the country. A recession will probably increase the bad debt levels to a level closer to the estimates.

missymouse

we overpay on our FD offset every month. Sometimes it would be tempting to not do so but our endowments do not look good so i would rather try and reduce the debt a bit. If i had known 17 years ago how bad endowments were i would have had a repayment mortgage from the word go.

Hindsight is a wonderful thing

milkshake_2

Hi everyone,

It's been a while since I've remortgaged, so the way all of this works, is taking a while to sink back in. I'm currently on Natwest SVR. The FD offset sounds quite appealing (esp. as its fee free at the mo), however the one thing that worries me is the fact its interest only, not capital and interest. I don't like the idea that I won't be paying any of the capital off.

Am I just misunderstanding the way offsets work? Can anyone clarify for me please.

Thanks.

neil9313

its not interest only, unless you choose this!

Locoblade

The mortgage is interest only as a minimum, but you can overpay as much as you like which will pay off the capital. When you speak to them on the phone they should tell you what the monthly repayment would be to make it a full capital repayment, or you can simply put in the details on their website calculator and it will give you the same figure.

On the application form (which Im just filling in now as it happens), it says do you want to pay interest only or capital repayment, and if you select the latter it asks you to write in the monthly repayment. If you want full capital repayment you put in the figure they give you on the phone/website, if you only want partial repayment then put in a figure between that and the interest only.

I think the way they display it in the key facts could be a little clearer, perhaps with the capital repayment monthlys listed as well if you decide to go with that, but basically don't worry about it, although its interest only as a minimum you convert it into a capital repayment by overpaying each month.

watchingthepennies_2

Can anyone help me with this question?

We've got a FD fixed rate offset. Interest calculated on the mortgage 2nd of the month, we make our mortgage payments on the 24th.

Is there a best time for us to make our monthly repayments? Does it make any difference to overall amount charged? (The amount for the mortgage repayment sits in the current account between 2nd -24th, so is still offset, but would it make any difference to pay any earlier?)

Thanks in advance if some one can help, this might seem a stupid qusetion, but just want to get it clear.