Offset Mortgages -- the Numbers

gil13

jrs101 wrote: »

Hi,

I'm looking at first directs offset 3y fixed deal at 4.09%

I have never had an offset - are they really that good on a practical basis? What are the pitfalls? is it purely there to reduce the term of years of the mortgage? How realisitcally benefical are these type of accounts?

FD told me that youd have to earn 4.71% aer on savings elsewhere for this not to be beneficial. I have about 30k in savings which I could offset I guess.

Any thoughts/advice are much appreciated,

I would say, go for it. Think of it like a standard repayment mortgage that allows you to link savings and current accounts which reduces / offsets the mortgage interest you pay each month. You set it up with a standing order to take the amount required at the mortgage interest rate to pay off the mortgage in full. Each month this money is taken as per a usual repayment mortgage, any money you have linked offsets the interest applied on the mortgage each month, but because you have a standing order set up for the original amount of interest and capital (to pay off the loan over the given term) then you are also overypaying each month(reducing the term).

I like the flexibilty of offset, at the moment when interest rates on savings are poor then you can put your cash into the offset savings, then you can switch back depending on the rates available and your mortgage interest rate. If you transfer your banking then money cycling through your first direct current account each month will also help offset.

It doesn't suit everyone, but an offset with FD is in my view an attractive product, mind you we have a 10 year fix and some of my own assumptions and strategy is based on that. The only thing you cannot do (as of yet) is offset ISA's - if they decided to allow this it would be perfect. Good Luck whatever you decide.

AndrewRH

London & Country have said to me that many offers are being pulled today and replaced (ie prices going up). Offset accounts were about 4.5% and in the next few weeks they expect them to be nearer 6%.

The guess as to why? Banks aren't lending each other (again/still). This even though Bank of England rate is steady at 0.5% and some banks have been nationalised.

Update: another call with them, and they report that Intelligent Finance (RBS) is about to stop lending in a few days (rebranding their products?!). Their current offset is at 5.6%, whereas a fixed 5 year with Abbey National can be had for about 4.89%.

~Andrew~

_dave__4

AndrewRH wrote: »

... Intelligent Finance (RBS) ...

Eh? I.F.'s website still say they are part of BoS, not RBS ... ?

jrs101

gil13 wrote: »

I would say, go for it. Think of it like a standard repayment mortgage that allows you to link savings and current accounts which reduces / offsets the mortgage interest you pay each month. You set it up with a standing order to take the amount required at the mortgage interest rate to pay off the mortgage in full. Each month this money is taken as per a usual repayment mortgage, any money you have linked offsets the interest applied on the mortgage each month, but because you have a standing order set up for the original amount of interest and capital (to pay off the loan over the given term) then you are also overypaying each month(reducing the term).

I like the flexibilty of offset, at the moment when interest rates on savings are poor then you can put your cash into the offset savings, then you can switch back depending on the rates available and your mortgage interest rate. If you transfer your banking then money cycling through your first direct current account each month will also help offset.

It doesn't suit everyone, but an offset with FD is in my view an attractive product, mind you we have a 10 year fix and some of my own assumptions and strategy is based on that. The only thing you cannot do (as of yet) is offset ISA's - if they decided to allow this it would be perfect. Good Luck whatever you decide.

Thanks for your reply.

Can anyone confirm First Direct's stance, or rather the FSA's stance on compensation of any "offset" savings should they go Bust. I am getting mixed messages from forums and from first direct.

thanks

Armchair23

'I have found a 5 year fixed rate offset mortgage with the Yorkshire, 4.99% fees £500. has anyone had any experience with this lender?'

I've had a YBS conventional mortgage for years and moved over to an offset about 2 years ago.

Rates aside ( don't know how they compete) I find them easy to deal with and they are a mutual, which is important to me.

You don't need to be tied into having a current account just savings and mortgage.

OverlandLandy

Armchair23 wrote: »

'

Rates aside ( don't know how they compete) I find them easy to deal with and they are a mutual, which is important to me.

You don't need to be tied into having a current account just savings and mortgage.

Cannot comment on YBS, however it makes better financial sense to have your current account with them and link it to the offset. I assume that they calculate the offset benefit on a daily basis?

felixpet

I am about to get the offset mortgage from First direct - has anybody tried it? Is it good? what's the catch? they are taking long to send us back the agreement - is it normal?
Anything better in the market?
any advice is welcome Thanks
Felix

mdhelp

freddieclaude wrote: »

My deal with the Woolwich is at 3.49% capped at 5.99%. I can offset as many savings accounts as I want including the childrens (which I am doing seeing as it's me who gives them money every month and noone else) and all my ISAs. This to me was the big bonus, the fact that I can offset them all without losing my tax free status. I believe the Woolwich is the only bank to do this or it was 2 months ago. The snag is that the fee is quite hefty at £995, I know I nearly fell off my chair but my intention is to have the amount offset in a few years time without using the childrens money and retaining my ISAs.

Now that is interesting. I didn't know you could use childrens accounts in this way. I'll take a look at Woolwich.

Bassey

I suppose if you can make overpayment with an offset mortgage it could have some advantages as your interest rate will be reduced.

Scottish_Miser

Hi All, we're looking to remortgage to an offset account.

I'm a higher rate taxpayer and we have a healthy amount in cash (25% of the mortgage) at the moment so it looks to be worthwhile.

I've used the "amazing mortgage shrinker" tool on the One Account website which said we could take the mortgage from our 13 year period down to 6 years and 9 months. Assumption included 1% increase in payments per year and a balance/savings increasing by £600 every month.

Looking at the First Direct calculator it's not so rosy. From our current SVR (3.5%) and going to a First Direct Offset (3.98%) with 25% of the mortgage offset using savings would only save us a small amount over the life of the mortgage. In otherwords our saving don't appear to be working as hard for us.

Is there a calculator out there which will compare like with like?

The One account looks great and the First Direct not so, given that they are similar I find this strange!