Offset Mortgages -- the Numbers

Earmuff1

Most of my mortage is offset by the savings that I have accumalated. I owe £8,000 on a credit card which is on a zero percentage rate from when I had cash flow problems. I have a mortgage of £120,000 and have savings of £100,000. The zero percentage rate is now coming to an end. However I was thinking about taking out another £8,000 on a different credit card at zero percentage for 15months. I know that I will have to pay 2.9% handling fee. Would it be better to use my savings and pay off the credit card? Or should I take advantage of another 0% loan and add the £8,000 to my savings? Hope someone can help with advice? Thank you. :mad:

getmore4less

Earmuff1 wrote: »

Most of my mortage is offset by the savings that I have accumalated. I owe £8,000 on a credit card which is on a zero percentage rate from when I had cash flow problems. I have a mortgage of £120,000 and have savings of £100,000. The zero percentage rate is now coming to an end. However I was thinking about taking out another £8,000 on a different credit card at zero percentage for 15months. I know that I will have to pay 2.9% handling fee. Would it be better to use my savings and pay off the credit card? Or should I take advantage of another 0% loan and add the £8,000 to my savings? Hope someone can help with advice? Thank you. :mad:

What's the mortgage interest rate?

read up about Stoozing, slow stooze with 0% purchase still work.

eldaniel

Hi all,

I need an advice. I am with Nationwide 5.98% and quiting from fixed (until end of 2012) will cost me £2900, but with current rates it will still pay off!
I have £70000 left on a flat worth £12000, which gives me LTV less than 0.60. I am overpaying maximum £500 a month (which I am allowed to), but still have some money left every month to save.
I can't decide which one will be better FD or Newbury.
FirstDirect 2.59% tracker for life (I will repay in under 7 years), where I can use every single penny saved to offset mortgage, but there is no certainity how long base interest rate will be low. Costs are £350 of taking it + some legal costs, so probably under £1000 together.
Second option is Newbury 2.99% 5 years fee free dicount. It is says The initial variable interest for the first 5 years is: 2.99%changing to our SVR, for the remainder of the mortgage, currently:4.45%.

Does it mean that 2.99% is guaranted for 5 years? or it is just for the start because it is as it says variable. and lets say after few months they can increase it?
Cost of taking Newbury is very low (max. £200 if I wont qualify for free valuation).
Newbury has option to overpay 10% of outstanding mortagage every year.
Which option to choose. Any advice appreciated!
Many thanks
Daniel

ginvzt

eldaniel wrote: »

Does it mean that 2.99% is guaranted for 5 years? or it is just for the start because it is as it says variable. and lets say after few months they can increase it?
Cost of taking Newbury is very low (max. £200 if I wont qualify for free valuation).
Newbury has option to overpay 10% of outstanding mortagage every year.
Which option to choose. Any advice appreciated!
Many thanks
Daniel

No, it is not guaranteed. Read the details:

Offer: 2.99% (our SVR with a 1.46% discount) for the first 5 years changing to our SVR rate for the remainder of the mortgage

So, it is a discount from their SVR, which can be anything they wish it to be. (Unless they have some promise, like it is not going to be more than 4% above BOE, which I doubt they do)

eldaniel

Ok, so with this in mind that discounted in reality is closer to tracker than to fixed I am definitely not going to take it.
I am going for First Direct offset 2.09%+base rate for term.
No ERC, unlimited overpayments etc.
Now the question is what term to choose. Please help me with that.
At the moment we pay £1243/month. But we thinking about the baby so we dont want to pay that much anymore as circumstances may change.
We want to take mortgage of £75000 and we are thinking to choose between term of 7 years or 9 years (this is my main issue - what term to choose).
On 7 years term our monthly payment will be (I will round it up to make it clearer picture) £980 where £820 is capital £160 interests as of first month.
On 9 years term our monthly payment will be £780 where £620 is capital and £160 interests as of first month payment.
The difference is £200 a month.
Now...If I choose 9 years and pay £780, but will put this £200 difference every month on a saving which will offset my mortage would that be equal to taking 7 year term assuming that I will use my savings to pay off my capital after 7 years??
Because that is the way I see it, I tried to explain it to lady at FD, but she said no, but I am not sure if she unterstood what I actually meant.
Basically. Am I right that taking longer term is better? Because if I save every month the difference between 2 terms I think it would be exactly the same, but I will have more security knowing that I am commited to £780 a month instead of £980.
Hope you guys understand my point. I cant find a calculator anywhere which could show the difference between 2 different terms of offset mortages.
Many thanks for your help in advance!
Daniel

Thrugelmir

As there are unlimited overpayments, taking the longer term mortgage gives you more flexibility.

Commit to a payment you can afford.

LongTermLurker

@Daniel - firstly, Thrugelmir is right, choose a term that you can comfortably afford because, remember, base rate will rise and then so will your payments. If 7 years leaves you no room for increase, in a couple of years you might really be struggling. Therefore, 9 years is safer.

Secondly, I sort of understand where you're coming from. Over the first 7 years, assuming no change to interest rates, you should pay off £70,200 in capital. Now if you offset £200 per month, at the end of 7 years you would actually have £16,800 cash, easily enough to pay off the mortgage. Not only that, but each month, you would be paying too much interest, so part of that £160 would be used to reduce your capital, so it should work out better than you suggest.

The above all assumes base rate doesn't rise, which it will.

First Direct have a really good calculator but it's hidden! I'll try to find it.

Edit - nope, can't find it - the mortgage assistant guided me to it but I've never found it since. However, if you do, it lets you put in your overpayments etc.

iBookG4

considering an offset mortgage but not got a clue really - just finished 3 yr fixed rate at 5.5, presently have basic variable repayment mortgage of £67,000 over 22 years and have savings of £8000 that I would like to dip into in an emergency but otherwise not. I'm never overdrawn on current a/c but wages minimal (£600 month) partner freelancing sometimes large amounts go thru' his current a/c but generally overdrawn. Any suggestions anyone?

pearlfinger

Hi all,

I've got an offset mortage of £124000 with the Woolwichw hich is the lifetime tracker @ 0.19% above base rate. and then a smaller mortgage of around £22000 on an inferior 0.89% + Base tracker. These have been synced to finish in around 15 years time. My wife was made redundant a year ago and her redundancy of circa £32000 is sitting in a pot offsetting against our debt every month.

I thought this was the best use of the money whilst interest rates are so low.

Is this the best use or should i look at paying off the smaller mortgage now?. We have some other outstanding loans which are due to end in about six years, should i look at paying these off too? Its a toss up between the short term ones and the smaller mortage.

Ideally, i'd like to bring our monthly costs down as much as possible.

thanks

steve

jamesd

pearlfinger, that's a really bad use of the money. At best you're saving only 0.89%+base, so 1.29%. It's easy to get more after tax interest than that from an instant access savings account, with 2.9% before tax available from the Post Office (Bank of Ireland, but with UK guarantee, so safe), or 2.99% from Nationwide, but only one withdrawal per year, else the rate drops to 0.1% for that month. Even if your wife is paying basic rate tax this year (income over the personal allowance) that 2.99% rate is 2.39% after tax, above the highest 1.29% mortgage rate. Both of those accounts include a bonus rate that lasts for a year, so you'd need to look for another deal after that. The Post Office account offers a monthly interest option, the Nationwide one is always monthly interest.

So you can get almost twice the benefit from putting the money in the savings account as you can by leaving it in the offset account.

There's also a regular saver account paying 8% available from First Direct. So each of you could open one of those and get 8% before tax on 250 a month per person paid into it, until the end of the year. Interest paid at that rate once the money is in the account. So maybe put £10k into the Post Office account and use that to fund those payments and for flexibility, with the rest in the higher rate Nationwide account.

If your wife isn't earning then she should register to get interest paid gross so long as the interest total stays below her personal allowance. She'd get no more than about £950 in interest so if her only income is the interest she'd easily be below it.

Paying off the smaller mortgage would be a waste of money that would make you worse off while interest rates on savings accounts are higher than the mortgage interest rate.