Offset Mortgages -- the Numbers

Darry

Ok, thanks. I shall start a separate thread will all the figures and see what people think.

RedMonty

EDIT

Apparently I should have opened a new thread. Have done so here, in a tidied up version.

forums.moneysavingexpert.com/showpost.php?p=58535375&postcount=1

(I am a newbie so the forum software won't allow me to post active links)

ORIGINAL POST

Trying to work out if I should go for an offset mortgage - it doesn't help that the MSE Ultimate Mortgage Calculator seems to be broken - see my post here - forums.moneysavingexpert.com/showpost.php?p=58514521&postcount=70 (Sorry - forum won't let me post active links)

We are currently with Santander (!) coming to the end of a 3 year fix on 4.49%, with £130k outstanding (on a 330k property).

Our independent(?) advisor wants us to stay with Santander & go for a 5 year fix on 3.49% with £125 payment. (£713/month payment.)

After a couple of hours research I found the Co-op offers a 5 year fix at 2.79% with £1000 fee, which works out £570 cheaper per year over the 5 years (inc the fee)! (£665/month payment - hello independent advisor!?)

However, my partner and I have quite high cash savings - about £9k in individual + joint accounts, 11k in savings accounts, plus I might be able to source another 10k from my underperforming shares. We're busy with jobs & 2 kids so not a lot of time to look after our cash so it's in rubbishy accounts.

Am looking very hard at First Direct's offset mortgage - seems highly recommended here, and good to have all our cash in one place and working hard.

FD current offset offers:

2yr fixed fee free, 3.49% then svr 3.69%
2yr discount tracker, fee free, currently 3.39%
3yr fixed, fee free, 3.79%
3yr fixed, £500 fee, 3.49

All quite similar monthly payments, around £530-560 per month which is very affordable, & will let us pump even more cash into the offsetting savings account.

What do you think? Co-op + lump overpayment + ISAs (low performing at moment), or 100% First Direct offset? (which one?)

Cheers RedMonty

miccon

Looking more closely than before at the balance of my off set mortgage, i owe more now than i did when i took it out 5 years ago.
Not much, a few hundred pounds, but in my simple head as it is interest only, as long as i pay do not fail on a payment, my balance should be the same now as it was when it started.
Is that a too simplistic view?

The bank tell me that in the first year, the interest they calculated, and therefore the payment they set up ( give or take due to days in month variation) , was under what it should have been.
So i now owe more and i am paying interest on a higher balance.
They refuse to repay the difference or the extra interest charges.

Have i missed something?

Thanks

ViolaLass

If you didn't pay enough interest then the amount you owed would have increased. Why should the bank waive the amount you didn't pay?

Thrugelmir

miccon wrote: »

Not much, a few hundred pounds, but in my simple head as it is interest only,
Have i missed something?

Thanks

Interest in charged in arrears. So at any given point you'll owe more than you originally borrowed.

miccon

ViolaLass wrote: »

If you didn't pay enough interest then the amount you owed would have increased. Why should the bank waive the amount you didn't pay?

To me it is an interest only mortgage.
They, and they have admitted this, calculated what they would set up as the standing order at the start of the loan.
So it was not me paying less, they were taking less because of a mistake at their end.
They have admitted this - but will not make up the difference.
If they said i needed to pay £200 per month but i chose to pay £190 then my problem.
The last 4 years the balance has stayed the same, so it wasn't obvious to me - only when i rang and checked exactly what my borrowing plus fees was did it show up and two of their service team couldn't explain why.

ViolaLass

It may not be your fault but you're not any worse off for it.

getmore4less

so how much have you really lost.

To put you back in the position you would have been.

You under paid so you still need to pay that.

On top there is the interest on the the difference over the period, they probably should refund that.

Robert90

The left side of the formula is the annual percentage interest you will pay with the offset mortgage. !The right side of the formula has two terms. !The first is the interest you will pay on your non-offset mortgage, the second is the interest you will receive on your savings.

missymouse

another question. our mortgage deal expires in June and I think we will probably continue with FD as it has been good and do another 3 year offset.

After that in theory our endowments will be ready to pay off the mortgage - ha ha.

if we don't have enough to pay the mortgage off what happens. do you simply remortgage for another say 5 years' and pay off the remainder of the debt. are banks happy for you to do this or do you get penalised for not being able to clear the debt. we shouldn't have any problem in the long run as we are both still earning etc and we haven't a huge debt thank goodness.