Offset Mortgage Question

BennyBrownBoy

Apologies if this is in the wrong forum...

I have a repayment mortgage of £47,500 and am paying £910/month. The interest rate is 1.49% and it is a Woolwich offset arrangement. We offset our current accounts against our mortgage and also our ISAs, each of which are currently £27,400. So we have £54,800 (plus current accounts) in total offsetting against the mortgage.

The ISA rates are 0.1%, which of course we are not getting. In November Barclays will increase the rates on our ISAs to 1.39% AER.

Apologies if the calculations are obvious, but I find them confusing. When the ISA rates change am I better keeping my ISAs offsetting against my mortgage or stopping that arrangement and taking the new interest rate on our ISAs?

Additionally, if our ISAs exceed £30,000, the rate increases to 1.49% - same as the mortgage rate. Same question - is it better to offset or take the interest?

Many thanks for your help.

edinburgher

1.39% - offset better
1.49% - 6 and half a dozen

You can get better than 1.49% on an ISA if you are willing to tie the money up for a while. Yes, your mortgage will cost more, but you'll save more overall.

BennyBrownBoy

Thanks - does it make any difference that my ISA savings are now greater than my mortgage?

egoode

There's really no point in offsetting more than what your mortgage is as you generally won't get interest on any amounts over the amount of the mortgage. I would just offset your current mortgage amount and put the remainder in an account with the highest interest rate you can find.

Gizmo247

Your figures are a little confusing.

For an offset any cash you have outside the offset (earning 0%) can be consider as taking a loan on your mortgage. Any amount over the fully offset amount you can consider an interest free loan to the bank.

I'm not 100% sure what the £910 payment is. Once fully offset (as I am) and unless you have other designs for the cash, I would recommend making capital payments (doesn't have to be massive) from the offset pool into the mortgage account as this looks good on the credit reports to see the principle reducing.

BennyBrownBoy

Thanks all. The £910 is the amount I pay off the mortgage every month.