Continue with offset or switch to repayment?

Poddly

We have had offset mortgage for many years with First Direct, current fix at 2.88% ending next month. Mortgage amount £292,000, house value £525,000 (2007 pre-crash figure!) 17.5 years left to pay. We have £100k + in savings offsetting our mortgage.

We are considering switching to repayment 10 yr fix at 2.89%, or continue with offset on a 2 yr tracker deal at 1.39%, obviously this could go up with bank rate. Both with FD.

If we went with repayment we would pay off £92k to make the payments more affordable. But the payments would be much more than we usually pay, c. £1200 p m as opposed to c.£380. In the next few years this could be a bit of a problem as we have car loans (interest free) until Dec 2015 and July 2016 also eldest due to start Uni Sept 2016 so we prefer to have readily available money to support him. So double whammy of increased monthly commitment and loss of savings would leave us a bit vulnerable in the case of redundancy etc. But we would ensure we paid off mortgage.

Keeping offset would mean a decreased monthly payment to around £200, we would probably pay off £50k as we currently have too much money in one institution for FSA protection. This gives us the flexibility we are used to, allows us to save for lump-sum repayments, but means we have the cash in case of emergencies. Aware that once we ditch the offset may not easily be able to get another one as they seem to have fallen out of favour.

Not entirely sure we would want to stay in this house after mortgage term, as it is large and suits our current circumstances but not once kids have flown the nest. DH was made redundant in Feb 2012 with good package, so we are very aware of this possibility.

Any thoughts? Anything else to consider?

getmore4less

offset money should be used for setoff in a FSA situation so not that big a problem.

Whats the best long term offset tracker?

The problem with these fixed is you have to keep making choices and you don't know what will be avaialble.

With a £190k net debt over 17.5 years you need to find a min of £900pm just to cover the capital.

I would do a cash flow anlaysis with your other debts and expected large cash outflows.

When the car loans come out of interest free pay them off if the rate is higher than the mortgage.

Thats one of the advanatages of offset cash flow easy access low rate cash.

if you want to be debt free in 17.5 years add up (expected large outgoings + current debt)/210 that's the min monthly payment before interest

Poddly

Car loans will be paid in full on the dates I gave. Once they are done we will have another £1000 per month but may need some of this to support son at uni.

getmore4less

Poddly wrote: »

Car loans will be paid in full on the dates I gave. Once they are done we will have another £1000 per month but may need some of this to support son at uni.

In the next few years this could be a bit of a problem as we have car loans (interest free) until Dec 2015 and July 2016 also eldest due to start Uni Sept 2016

This confused me as next few years a problem is not the same as paid off in 18month.

Not sure what your problem is you have a £900pm capital commitment paying £1200pm now and will have £2200pm before the end of next year.

At 5% £2200pm for 17 years will support a mortgage over £300k leaving the £100k savings as spending money to pay uni etc.

Poddly

I just mean that the car loan payments mean switching to a repayment mortgage and thus increasing our mortgage payments would squeeze us a bit tight in the short term. I'm probably not explaining it very well.

getmore4less

That FD 2y tracker has a hefty fee £1450

I think I miss read the fist post you don't pay/offset £1200pm currently

how much do you allocate to the mortgage debt every month?

Poddly

We pay £380 p m which is just the interest. We have no official capital repayment vehicle, just our savings. Mortgage was initially £424k in 2007, now £292k and we have nearly £100k we could use to pay it down. Running the figures it is still worth paying the fee for the lower interest rate, compared to the next lowest rate without a fee.