Offset Mortgages -- the Numbers

westyuk_2

Hi all,

This is my first post and thought i would share it with you.
I am in the process of re-mortgaging and was looking at the Scottish Widows 2yr offset tracker at 3.19%.

Today i discovered a product from Alliance and Leicester which is also a 2yr tracker currently 2.95%. Both of these track the BoE which i have always gone with.

The Alliance and Leicester allows you to make overpayments but these build up a credit facility. This then allows you to borrow the money back up to the full amount of the overpayment. Only criteria is that £500 is minimum they will let you have back and they send you a cheque so not so good if you need the money quick.

It may not be advertised as an Offset mortgage but works just like one, just wondered if this sounds like a good deal?

Currently I owe £170k and have 32yrs remaining!
I have savings of £32k in ING which i need to either invest in a better rate account or offset against our mortgage.

Is there a way of knowing whether your savings will be better offset or in savings. I haven't found any calculators or simple equations to know what i would be better off doing?

Thanks
Westy

Captain_Chaos_2-2

Hi westyuk

I'm unclear from what you described if that mortgage is an offset.

So he offset for example you have
100k mortgage
50k savings
you receive no interest on your savings and pay no interest on 50k worth of the mortgage.
depending on hw the offset is set up you can use the savings to either
a. reduce the monthly payment (this wil mean the term is remains the same) or
b. reduce the term this means you keep the sae monthly payment however a greater propotion of your monthly payment is paid directly of the capital beacuse you are not paying interest on 50k.

If that is a part of your mortgage package then it is an offset.

As far as savungs rates /mortgage rates what is better you would have to have a browse but bear in mind when base rate drops savings rate usually drop and mortgage rates usually drop when base rate rises savings rate usually rise and mortgage rates usually rise if that basic logic is applied and compare with a straight forward bog standard instant access savings account you might as well offset.

What does the mortgage do after 2 years?
What is the set up fee ?

and the woolwich are doing a 3.19 lifetime offset tracker.

If the offset is used affectivley i.e offsetting all monies current accounts isa's etc I have seen some customer repay the debt in half the time they applied for.

Hope this helps buddy

getmore4less

Makes sense for the setup costs you get a lot of flexability and especialy the ability to pay backthe money quickly

I would be carefull about self borrowing it could be come a habit.

I would also keep the ISAs and try to top these up.

Since initialy you will be paying no interest then the fixed rate is not that relevent is is the future rate when you draw down that is important

You can look at other providers or other FD products that have a better rate in the future years.

also check out the no fee options against the fee based ones on an example of draw down at some point to see if the higher rate costs more than the fee

Barclays allow ISAs in the offset pool so that is an option

monkeyclipper

I am looking at offsetting in the New Year and have seen the Woolwich
However the 1st Direct of Base & 2.49% with no set up fee and legals and valuations paid seems to be streets ahead of the other offers- or am I missing something.

I appreciate I am assuming rates wont significantly increase for awhile but that is a pretty safe bet

nhp

I've said it before, I can't praise FD highly enough.

I've got a FD offset mortgage, and I was wondering whether it was worth setting up a savings account rather than offsetting the capital?
Currently 1.29% interest rate with FD, so with Savings rates up to around the 3% mark does it make sense to save in a separate account rather than offset?

I'm a basic rate taxpayer.

tubster

Yes, it does make sense if the savings rate after tax exceeds your tracker interest rate. To be extra safe you should avoid fixed term savings accounts so you can move the money back immediately should the rates change. Or if you want to gamble, you could go for the 4 per cent National Savings Bond, but its tied up for a year.

emp_3

hi i wonder if you can help me understand my mortgage please.

it's a fixed offset mortgage, so all the calculators on this thread - do they apply to me? or not because it is fixed? we currently pay 6.29% fixed which is approx £750 a month interest, £750 repayment, and we try to overpay £200 each month. this is a 2 yr term up in sept 2010 so we are starting to think about what to go onto next. one friend said that paying interest only and then saving the equivalent amount in a savings account and paying lump sums off is cheaper for them, but thats a query for another thread :0) i just wondered if any one could tell me about whether the offset we currently have is a good or bad thing?

thanks

emp xx

barii

If you're like me, I find all the different types of mortgage very confusing. Offsets, capped, tracker, variable etc... Before doing all the number crunching, I wanted to find out the ins & outs of each type. I found a free online learning course, which was really good - all explained in jargon free language. Its a site targeted at women, but guys can use it too. worth a look if you're a bit fuzzy on how all these mortgages work. Its called pinkinvestments.org I got a lot out of taking the online course & now I am ready to do some number crunching!

LBM2010

Hello All,

I currently have an Offset mortgage with First Direct @2.99% fixed for 2 years. I was wondering if anyone can explain how they work out the mortgage interest each month and how the monies in my account work towards reducing this sum. I try to save 250 each month and was wondering how many pennies this reduces my interest by each month.

Any help from you number crunching Excel gurus would be greatly appreciated.

LBM

Philycheesesteak

I'm just about to transfer to an offset having just finished a fixed deal.

I have some savings which are doing nothing for me, and I could pay it off the mortgage but this flexibilty means that I can dip into it at any time. I've not been able to figure out this complex calculation out. But basing it on the forcast from my current lender and the calculations from First direct, I'm going to shave years off my mortgage, with out the hassle I used to get from Halifax when I wanted to over pay before. I know I could get a better current account rate or savings rates, but I like the idea of a one stop shop, and my no.1 goal is to pay off my mortgage asap.