Trying to work out if Offset is more suitable than Tracker

20vt-rs

Hi guys..

I'm trying to work out if an Offset mortgage is better for me at the moment rather than the tracker I am currently on, I understand the principles behind offsets but am a bit confused by the calculator on the main site

It lays out current deal v's offset and you input your figures for mortgage and savings. On the results there is an interest cost showing, presumably the higher that is then I'm better off doing the opposite?

On my actual figures, over the remaining term of 17 years it shows approx a £400 diff between the two. But it also shows that I pay off on an offset 2 years early. On shorter term it shows tracker winning on interest costs.

Anyway, I'm still confused, would anyone mind helping please and hopefully explain Offsets in simple terms

HappyMJ

Offset is just like overpaying but you can withdraw your overpayments without having to resort to more expensive credit such as a personal loan or a credit card.

It saves money but it doesn't save much...so buy the mortgage based on the interest rate as you will save much more that way.

If you are planning a large purchase such as a car then don't overpay and save the money instead.

By what you have written I'd go for the tracker and overpay whenever you have excess cash that you know you will never need. The savings you hold should be kept in high interest savings accounts (currently paying 3%). If your partner has no income then they can earn the interest tax free which is one of the attractions of the offset mortgage.

There aren't any simple terms...the simplest I can think of is just look at the standard variable rate of the loan and base your decision on that.

Personally, I love offset mortgages but I would never recommend one to any of my friends.

20vt-rs

Thanks for the feedback MJ, my tracker is on 2.79% at the moment and the offset I see with FD is 3.69%. My savings are in a 2.75% account and that is for the next 9months or so. I'll keep plodding along and overpaying!

amnblog

In simple terms £100K on your current product costs you £2,790 per year.

On the offset product £100K will cost you £3,690.

Therefore you need to save at least £900 a year in interest or you are out of pocket.

To save that you will need to have an average £24,390 in your offset cash account.

In this case -if your average cash on deposit is not at least 25% of your mortgage size this offset product will cost you money.

20vt-rs

amnblog wrote: »

In simple terms £100K on your current product costs you £2,790 per year.

On the offset product £100K will cost you £3,690.

Therefore you need to save at least £900 a year in interest or you are out of pocket.

To save that you will need to have an average £24,390 in your offset cash account.

In this case -if your average cash on deposit is not at least 25% of your mortgage size this offset product will cost you money.

Amnblog - Thanks you that is clear now, makes perfect sense too. I'll be sticking where I am I think, seems to only make sense if you have tens of thousands available to offset and / or the offset rate is more competitive...

amnblog

20vt-rs wrote: »

Amnblog - Thanks you that is clear now, makes perfect sense too. I'll be sticking where I am I think, seems to only make sense if you have tens of thousands available to offset and / or the offset rate is more competitive...

It works well for the self employed, higher rate tax payers, with tens of thousands on deposit.

Otherwise it is a bit of a vanity option in todays market.