Offset Mortgages -- the Numbers

bluenose1

Thanks medic 1978 and jamesd.
The question now is should we get an offset mortgage with First Direct or with a mortgage lender who lets you offset your ISA's?

jamesd

Whichever offers you the best mortgage deal. A saving there is likely to be worth more than any ISA factor because of the larger amount of money involved in the mortgage loan.

Treacle_Toes

I'm going to start an offset with FD. I notice that they have 2 different savings accounts which can be linked to the mortgage. The account that gives you a cash card is lower interest rate than the one without a cash card.

Have I got it right that it doesn't matter which account I open to put my savings in as I won't actually earn interest on the amount in there, my savings will just be offset against the mortgage?

whu

yes - you will not get interest on either of the accounts (current or savings) - they will both be used to offset the mortgage

Lily2009

the greater the difference between the rate of the offset mortgage and the best mortgage you could get otherwise, the higher the percentage has to be. !The more favourable your after tax savings rate, the higher the percentage has to be.

One of the big advantages of an offset mortgage for some people is that they run very large amounts through their current account each month, and this is set off against their mortgage, even if only for just a few days. !Since current account rates are significantly lower than savings rates, to reflect this situation the formula has to be more complicated.

poached_egg_on_toast

I have an offset mortgage charges interest at 0.15% over the B of E base rate. With the recent turbulence, I think this is a good deal, but what I'm trying to work out is whether I should be moving my savings elsewhere.

I've tried to get my head around this before - i.e. what savings rate would be worth swapping for (including ISAs). I've seen some equations on this forum, but none seem to quite fit my question.

My offset is not linked to a current account, so is savings only

Is there a numerical master out there who can provide me with such an equation?

jamesd

For a cash ISA you'd need a rate that is 0.15% over the BoE bank rate. Take that number and divide it by 0.8 if you are a basic rate tax payer or by 0.6 if you are a higher rate tax payer and that will tell you what rate you need in a taxable account.

cb101

Hi

I have an IF offset mortgage and I’m having a bit of a mind block at the minute as to whether I’m using it properly, having recently had another look at the T&Cs. (These show a diagram with the different jars with different interest rates stacked up against the mortgage jar)

I am offsetting my current account and also a savings account and an ISA and I’m currently fully offset and was quite happy with this.

However, since my mortgage rate is now lower than what I can probably get if I move the ISA out I was looking to try and do this and get a fixed ISA for a year with another provider (if there are any left!)

So my question is, with IF does it make any difference which jar the money is in when it’s being used to offset –(current, savings, ISA- which all have different rates if not part of an offset plan) or are they all essentially ‘earning’ the same interest as the mortgage rate when they are used to offset?
(I know they aren’t really earning any interest and you only pay interest on anything outstanding but you know what I mean)

I hope that makes sense, but having looked at the T&C's I'm totally confused

Thanks

C

getmore4less

The rate they get when NOT offsetting is the accounts rate(less tax)
The rate they get when offsetting is the mortgage rate


What rate does the current ISA get when not offsetiing, if that is higher than the mortgage rate just unoffset them and then look for a higher rate

The advantage of the ISA is that if you keep the interest in the ISA it compounds increasing your tax free pot, It can be worth doing this even if the rate is the same or lower than the mortgage rate as long as you can pay the mortgage interest from other income.

greyrabbit

quick question from a complete newby - looking to re-mortgage, have inherited a bit of money, mortgage to be about £110k, savings total of approx £40k, no other debts, high rate taxpayer, currently overpay mortgage. Really fancy an offset mortgage, but a bit unsure as to whether they're, erm, 'trustworthy' in current financial climes. Advice gratefully recieved, thank you,