Offset Mortgages -- the Numbers

anskills

generally speaking, would a higher rate tax payer with 50% LTV be more efficient to use an offset mortgage rather than a traditional capital repayment mortgage?

OverlandLandy

pol28 wrote: »

A few years ago I took out an offset mortgage with Barclays. The mortgage is interest only and the rate charged is .25% over base rate. Over the next 2 years I paid off around 50K and reduced the mortgage outstanding.
I now want to raise my mortgage back to the original sum but Barclays say that I can only do this as a separate loan at a higher rate and cannot incorporate this within the original mortgage.
I have made all payments on time and feel that I am being penalised. I have a great deal of equity approx 50% so this is not an issue.

Anyone have any experience on this subject???

I have been fighting Barclay's on this very subject for the last 6 months.
I was sold the Mortgage as being Fully Flexible and Portable.....
I have now moved house and they said I could not
1. Draw back my overpayments (£50k)
2. Port over at the same rate (0.35 above BBBR)

They said I HAD to cash in my mortgage and take a new one out at a higher rate and had to pay £1k in fees in the process.

It was also more complex as I was left with no option but to take out a BTL with a high interest rate (originally I was told I could convert to one for £100 + a re-survey fee!).. The BTL was another £1.5k fee + the high interest rate.

Barclay's have not upheld my complaint and I'm now just filling out the FOS complaint form.

I paid £20 for all my details from Barclay's - it was all there by my initial complaint - this was raised by their own mortgage expert as even they thought it was unfair!

Tembo_2

GAH! I dont understand the offset calculator.

The final figure shows as following;

Full term 25 years 20 years
Interest cost £40,755 £17,595
Interest earned on savings £39,861 £0
Net interest cost £895 £17,595
Amount left in savings £142,861 £103,000


That makes no sense to me It looks like the offset (on the right) is cheaper for interest but in the longrun i'll have more money in my savings with a fixed term repayment mortgage.

Is that right? Gees I feel quite, quite stupid.

System

Tembo wrote: »

GAH! I dont understand the offset calculator.

The final figure shows as following;

Full term 25 years 20 years
Interest cost £40,755 £17,595
Interest earned on savings £39,861 £0
Net interest cost £895 £17,595
Amount left in savings £142,861 £103,000


That makes no sense to me It looks like the offset (on the right) is cheaper for interest but in the longrun i'll have more money in my savings with a fixed term repayment mortgage.

Is that right? Gees I feel quite, quite stupid.

Dont quite understand these figures, but basically if you dont offset you will have more savings as you will be earning interest on them. With offset savings you will not earn interest however, as you will be paying less interest on your mortgage you will pay it off sooner (provided you keep your monthly payment the same).
Basically if the interest rate on your mortgage is higher than the rate you could get on ISAs (and savings after tax), then it is better to offset.

harbinger13

Maybe a basic question.
If my house was originally worth 100K - with me making initial downpayment of 20K and then making a repayment mortgage of another 20 + 3K (interest) for the past two years, I am down to 60K.

Now I am planning on moving to offset mortgage. So most of the offers out in the market are asking for 30% or so of downpayment. Now does it mean on on the total value of the house 100K? meaning which I have almost 40% equity on the home. Or are they asking for 30% of 60K which is 18K or so in fresh downpayment?

Essentially when remortgaging does the equity that I already have in the house is count for something?

Merry Xmas to everyone.

KeenToSave

I have a Santander flexible offset mortage tracking at 0.5% over base rate. The loan was £135k for 17 years and with 9 years to go has available funds £116k and a savings balance of £12k.
I have used Martin's calculator to determine the minimum investment rate (if I was to take money out of my mortgage account) taking personal tax into account and see lots of possiblities.

My questions are;

1. Are the 'Funds Available' and the 'Savings Balance' in my mortgage counted within the £85k limit for FSA compensation? I have my mortgage, current account and some other accounts with Santander so am wondering if I am over the compensation scheme limit by having my mortgage as well as these other accounts with Santander.
2. If the answer to above concerning my mortgage is 'no' and I was to move money from my mortgage to another Santander product - am I correct thinking that this would place the funds at risk so would be better placed elsewhere?

busiscoming2

I am struggling to understand the concept of an Offset mortgage - yes I am daft!

We owe £22,000 and have approximately 8 years left. We are overpaying and as long as the current rate stays low (2.5%) at the moment, we will continue to do so.
We have about £22,000 in savings.

Is it better to leave the savings where they are or consider an offset mortgage?

Thrugelmir

For such a small balance the cost of remortgaging or switching product will outweigh any advantage.

If you can earn more than 2.5% on your savings. Then leave them on deposit (ISA's etc). Otherwise you might as well pay your mortgage off quicker.

MartinPaul

First Post!
We have approx 150k left on the mortgage, our mortgage is interest only at 2.5% and we have overpaid 6k to date.
I have tried to follow the formula's and read other posts but just can't grasp it.
Is it worth me changing to an offset type mortgage and putting 10k in as the starting balance against the mortgage??

originalmiscellany

MartinPaul - Things to consider - Lots of offset mortgages rely on you having a decent LTV, which it sounds like you might not have if you've only paid off 6k so far. If you have spare money then it could be good in terms of eating your mortgage regularly.

If it's a big amount you owe, the cost (if it's a few percent) could make it completely unworkable;