Offset Mortgages -- the Numbers

OverlandLandy · 17 March 2014 at 3:31PM

With £50k in savings and investments I would say you are actually very good with finances!

:money:

You need to calculate the interest (less tax at the relevant rate if appropriate) you will earn in the next 2 years and compare this to the savings you will make on the mortgage Interest charge vs the capital reduction... if that makes sense?

Basically if you have a £60k mortgage.. but put in all your funds of £50k into the offset account you will only pay interest on the difference ie the £10k. You need to keep your payments the same as they are now and in effect the £ that is not going to the Interest charges will reduce your mortgage by a capital amount. You will earn NO interest on your savings but neither will you pay tax.

Play around with the offset Mortgage calculator (links at start of thread I think). It will be amazing how quickly you can reduce the balance outstanding

HOWEVER A BIG WORD OF CAUTION.... DO NOT BE TEMPTED TO SPEND A SINGLE PENNY OF THE OFFSET (£50k) OR IT DEFEATS THE WHOLE REASON TO HAVE AN OFFSET!!

brightlight14 · 17 March 2014 at 3:49PM

Thanks for the help OverlandLandy! I think I've just been lucky as I'm rubbish at maths and figures etc!

There's no tax to pay on the savings certificates or the ISA so I'll work out an estimate of the interest I'd earn in the next two years on those, compared to the interest on the mortgage. I'll try and use the offset mortgage calculator to help me.

Thanks ever so much for explaining it to me clearly!

OverlandLandy · 18 March 2014 at 12:26AM

Here is the calculator that you need... http://www.moneysavingexpert.com/mortgages/offset-mortgage-calculator

good luck with it..

MichaelGrain · 31 July 2015 at 1:19PM

Intelligent Finance offered us an offset mortgage in 2007. This week we have received a letter suggesting that we should close our savings jars as interest rates are to drop in October from 0.7% to 0.5% . This suggestion seems to be bad advise because our jar investments value offsets interest on savings. Has anyone else received this letter? Does anyone know if this suggestion is good or bad advise?