Offset Mortgages -- the Numbers

SteveBentley

I have an Intelligent Finance offset mortgage. I'm trying to get my head around whether there is anything to be gained in terms of shortening the mortgage term by making a lump sum overpayment rather than leaving the money in a linked account?

jamesd

SteveBentley, you lose flexibility but gain that the money may not be considered savings if you need means-tested state benefits. There's no interest difference, just side effects that are positive or negative. Personally I'd go with keeping the term the same and accumulating a large pot of money.

Or put some into investments gradually over the next three to five years, while prices are low. But many people won't be happy to take that sort of risk even though a mortgage payoff is a classic long term investing possibility.

markee_2

Can I borrow more, at less interest rate, to pay off a higher interest part of existing mortage ?

Gambler

nhp wrote: »

Regarding FD - I'm with them at the mo - tracking at 0.79% above BoE base rate for life of the offset morgage.
FD are brilliant, and their accounts great to manage online, very easy.
Looking to pay off mortgage within the next 10 years hopefully.
Cannot speak highly enough of them and their customer service.

The only thing I have against FD is you can't link a Cash ISA. :mad:

gil13

Can't link a Cash ISA..

Yes I know, I keep emailing them to request they consider. If we all did the same perhaps they might listen. My argument was it would be a great marketing tool, would bring them in line with some of their competitors, would continue to enhance loyalty amongst customers and would help to increase the banks deposits in a pretty straightforward way.

hollyhocks_2

have you checked out First Direct?

patchwork_cat

I am new to the concept of offset. I have looked at, after advice on another thread,going for YBS 5 yr fix at 4.69% £365 fees (inc exit fee). We are getting an inheritance of about 46/50K sometime (dependant on flat sale) and I am thinking of offsetting this against my £84K mortgage. I am going for the interest only option and putting the repayment part calculated by us either into the offset account or ISA depending on interest rates etc.

When I was talking to them they mentioned net and gross payments and lost me as surely the whole point of an offset is net payments? or have I got hold of the wrong end of the stick? Do you think that this sounds like a good idea with 54% of mortgage in savings?
If interest rates rise and I plan on moving my savings in the offset to something with more interst is this still the best option or would I be better of going for an interest only fix and investing my savings and regular monthly amount elsewhere?

Also what are the implications of having more than 50K in an offset account under the protection scheme?

freddieclaude

As far as I'm aware and I did do quite a lot of looking around the only mortgage company that offers offset against ISAs is the Woolwich, however their arrangement fee is £995. You can offset any number of savings, cash ISAs and current accounts and the kids savings money (well it's not like they're getting any interest and we do give them something each, each month). You can repay 5k every year and are only tied in for three years. The rate is 3.49% above base and is capped at 5.99%. I'm tempted.

I also need to get my head around the best thing to do with our savings. I think on a 80k mortgage I can lodge 45k against it.

I'm quite intersted too in what someone said about these savings not being counted for means tested benefits. We've lost out in the past when hubby was redundant and I was maternity leave. Couldn't get a penny because we'd been careful in the past. I'm wondering if it is the same for children going to university? This mortgage can be got out of early without penalty and there is a certain pleasure in being mortgage free but not at the expense of losing out when the kids want further education.

Booradley_2

freddieclaude wrote: »

I'm quite intersted too in what someone said about these savings not being counted for means tested benefits.

You may have misunderstood that. Money held in offset products is still savings and your money. You would have to declare it as such if claiming means tested benefits. If you pay it off your offset mortgage then it's gone, no longer yours and therfore you can't declare it.

Boo

Booradley_2

Looking at offsets myself. Will be able to deposit the whole amount of loan to offset all of the interest. So am I right that the rates don't really matter and I should just look for the cheapest fees.

Boo