Offset Mortgages -- the Numbers

michaels

Thoughts?

I currently have an FD offset at 2.49. I could move to the HSBC 2.19 deal saving 750 pa.

Pros - obviosuly 750pa

Cons - I may get made redundant and like the idea of being able to dump my savings in to the fd mortgage and thus qualify for benefits whilst still being able to redraw if needed - but 750 pa seems an expensive price to pay for this flexibility but obviously it would not take many months of having the council tax and school dinners paid for to more break even. Obviously with the HSBC I would be able to pay off the mortgage and qualify for benefits but would not be able to draw money back to live on. If the economy is not too bad obviously I should be able to find another job before any of this becomes an issue but were we to see another early 80s style recession then who knows?

jrs101

michaels wrote: »

Thoughts?

I currently have an FD offset at 2.49. I could move to the HSBC 2.19 deal saving 750 pa.

Pros - obviosuly 750pa

Cons - I may get made redundant and like the idea of being able to dump my savings in to the fd mortgage and thus qualify for benefits whilst still being able to redraw if needed - but 750 pa seems an expensive price to pay for this flexibility but obviously it would not take many months of having the council tax and school dinners paid for to more break even. Obviously with the HSBC I would be able to pay off the mortgage and qualify for benefits but would not be able to draw money back to live on. If the economy is not too bad obviously I should be able to find another job before any of this becomes an issue but were we to see another early 80s style recession then who knows?

Can you actually claim benefits if all your savings are in an offset? Is that lawfully possible?

Can someone give me an idea with regards to closing ISAs and putting this money in an offset (with First Direct). Surely I could just close the ISAs and put the money in the offset? Is that a good/bad idea?

michaels

FD offset you actually put all the funds in the mortgage account which you can then redraw against if required but benefits agency do not expect claimants to borrow against equity in their residence before claiming benefits.

I think keeping the isa is the way to go - my isas pay more than the mortgage and even if they didn't now if you give up the tax free allowance you can never get it back again if you decide in future you would have been better off with savings. Seems strange FD do not let you offset the isa.

silvercar

Another offset benefit:

As you don't pay interest on the offset savings fund. If you are on the border line for eligibility for CTC or WTC (also CB from 2013), the interest on this savings money would count as part of your income if it was in an ordinary savings account, whereas in an offset it generates no interest, so no income to boost your earnings. in 2013 it could make the difference between being eligible for child benefit or not - a differencce of over £2000 a year if you have 3 children.

pauljoecoe

Thinking of doing an FD offset. 2.59 lifetime tracker (2,09 above Bank of England base). Costs are £99 plus £99 valuation. However you get £100 back on opening your FD current account.

Currently I am on a tracker that has a collar of 4% so am stuck at that rate at the moment. I also have about £40K of savings that I wish to keep accessible. The mortgage is going to be £85K

So as far as I see it I will be able to be effectively receiving a 2.59% tax free interest rate on the savings. (i am a 40% rate tax payer)

The advantages over the present mortgage are simplification of savings/current/mortgage accounts an immediate reduction in monthly payments (which I will take advantage of by overpaying) and a better savings rate than i am currently getting. I also have some endowments maturing soon that I will put into the FD offset.

So am i doing the right thing?

Ugi

I don't know whether this is the right thread to put this query, but if anyone with experience of offset type mortgages has an opinion on this, I would be grateful of it.

We currently have a mortgage with the Nationwide. It is not strictly "offset" but we are able to over-pay without penalty and by doing so can build up an overpayment reserve which we can withdraw if we need to. We have been overpaying for some years as a way to avoid paying tax on our savings and have withdrawn funds successfully from the overpayment several times (buying cars, major holidays etc).

We may shortly reach the stage that we could clear this mortgage. However, it occurs to us that it might be better to keep it for a few years because if we ever need a lump-sum, it would be much cheaper to draw down on our "reserve" than to take even another secured loan against the house.

Does anyone see a problem with us paying off until we have, say £100 owed on the mortgage and then just paying the 50p a month or whatever it will be costing us to keep our draw-down facility available? It seems to us that a few pounds a year is not an unreasonable price to pay for the comfort of knowing we could borrow at a reasonable rate if we needed to.

Anyone done this type of thing? Any other opinions?

Cheers

Ugi

LongTermLurker

michaels wrote: »

Cons - I may get made redundant and like the idea of being able to dump my savings in to the fd mortgage and thus qualify for benefits whilst still being able to redraw if needed - but 750 pa seems an expensive price to pay for this flexibility but obviously it would not take many months of having the council tax and school dinners paid for to more break even. Obviously with the HSBC I would be able to pay off the mortgage and qualify for benefits but would not be able to draw money back to live on. If the economy is not too bad obviously I should be able to find another job before any of this becomes an issue but were we to see another early 80s style recession then who knows?

Isn't that called Deprivation of Capital?

michaels wrote: »

FD offset you actually put all the funds in the mortgage account which you can then redraw against if required but benefits agency do not expect claimants to borrow against equity in their residence before claiming benefits.

I understand that with FD your offset is kept in separate accounts to your mortgage but you can choose to overpay - you can then withdraw overpayments subject to their approval. Clearly you're talking about overpaying, but I'm not sure the benefits people would approve if they found out.

The thing is, I'm not sure how they would find out...

LongTermLurker

pauljoecoe wrote: »

Thinking of doing an FD offset. 2.59 lifetime tracker (2,09 above Bank of England base). Costs are £99 plus £99 valuation. However you get £100 back on opening your FD current account.

Currently I am on a tracker that has a collar of 4% so am stuck at that rate at the moment. I also have about £40K of savings that I wish to keep accessible. The mortgage is going to be £85K

So as far as I see it I will be able to be effectively receiving a 2.59% tax free interest rate on the savings. (i am a 40% rate tax payer)

The advantages over the present mortgage are simplification of savings/current/mortgage accounts an immediate reduction in monthly payments (which I will take advantage of by overpaying) and a better savings rate than i am currently getting. I also have some endowments maturing soon that I will put into the FD offset.

So am i doing the right thing?

I think the lifetime tracker at over 2% above base rate could prove quite expensive in a few years when rates rise. I like the look of the 2 year tracker and am going for one myself. Not sure I'd track at that rate for lifetime though.

LongTermLurker

Does anyone see a problem with us paying off until we have, say £100 owed on the mortgage and then just paying the 50p a month or whatever it will be costing us to keep our draw-down facility available? It seems to us that a few pounds a year is not an unreasonable price to pay for the comfort of knowing we could borrow at a reasonable rate if we needed to.

I'll leave others to answer your specific question, but I remember reading another reason for doing this; that 50p/month or £6pa is a good fee to pay to have your deeds kept in a safe place...

Ugi

Thanks LTL - good thought.