Should I leave offset for a 0.6% cheaper first direct mortgage

tubster

Hi all

I am 44, wife and two kids and £115K and 15 years left on a first direct offset mortgage (currently 2.39 per cent base rate tracker; interest only but we overpay to effectively repay in the term, £800 a month). House is probably worth about £340K.

First direct now do a fee free 1.79 per cent standard repayment tracker - which using a straight comparison with the MSE comparison tool would save us around £5,500 over the term, assuming no offset going on.

Thing is, I'm offsetting £30K at the moment - our life savings - and soon I will inherit another £30K.

I am (just) a higher rate tax payer; my wife is normal rate. We both pay £300 a month into the FD regular saver and move to offset account every year.

I am on a Teacher Pension Scheme pension, but haven't paid that much into it; projection is currently 3K a year at 65 plus state pension. I have probably got about 6K invested in other old pensions.

My wife is fed up with her NHS job and might try freelancing; she has been paying into her NHS pension much longer than me but they are changing it now, and she isn't sure whether to transfer her old final salary pension to a new one.
Kids are reaching secondary school age; I'm fairly risk averse and like having the offset cushion.

But 5K saving is pretty good, I'm tempted to keep say 20K in a savings account for emergencies and put the rest into the lower rate mortgage.

I've got a few issues here - firstly am I crazy losing the the offset cushion to for the 0.59 per cent saving? Potentially we could offset quite a lot, so the saving is probably more like 3K over the full term.

Another possibility is that we might move to a bigger house as the kids get bigger - maybe a couple of years down the line - so should I just leave it all in the offset until the picture gets a bit clearer?!

Secondly I'm not really sure what to do with this inheritance money - I have everything I need - but don't have much in the way of a pension, would it be best tied up there?

I've just looked at pension overpayments - as I earn @45K not much is available for the 40 per cent tax relief, probably about 2K - with the teacher pension scheme I could give them an extra 5k and get the full tax relief (for £500 of extra income at 65 pa). Then do the same annually maybe.
Or would it be better to go for a SIP, so I could get to it at 55.

Maybe put the rest in wife's saving account (she pays lower tax rate)? Or stick with the offset and keep there?


Any thoughts/comments appreciated.


NB I also posted on savings board by mistake, apols

getmore4less

You effectively will have a 50k mortgage getting smaller quickly.

0.6% is £300 saving in the first year you won't save anywhere near £5k.

tubster

Thank you - yes, it would be more like half the saving. I guess it's down to how useful the offset is, at the moment it is a easy place for savings and outstrips savings accounts...