Re-Mortgage - Offset or Repayment ? Advice would be appreciated

Lil_Dee_2

Hi All,


I'm finding it difficult to decide which direction to go in with my re-mortgage which is due any time now.


We're currently with First Direct. We have been on an Offset for the last 3 years, and we've done quite well with it (IMHO). We have no debts at all, except the mortgage. We have been paying the Offset as though it was a repayment, so that the capital is reducing every month.


We started with a £71k mortgage in April 2012, and have been paying £518 each month, plus OPs.


I want to pay the mortgage off as quickly as possible, so that I don't have to worry about it any more. I have been over-paying each month at least £125-£200, which I hope to continue to do.


I am struggling with the option of repayment or continuing with an Offset. My job is not overly secure, and I am the main wage earner, so I'm not keen to use my savings to pay off some of the remaining mortgage in case things go south. This is the position we're in :


Mortgage remaining : £51k
Savings Account : £24k


Can someone please help me with a 5-7 year plan ? I'm really confused as to what would be better for us, and would be really grateful for some advice if you feel you can help ?


Thanks in advance, Lil Dee

getmore4less

THe problem with an offset(of thetype you have) is the saving are over the benifits threshold.

The advantage is you have access to cash.

in terms of pure cost it is down to the rate.

THe flexability of the offset can get yopu through a rough patch far better than a repayment with no savings and no income.

MY choice would be keep the offset and max out the savings as much as possible.

If job is a worry start cutting back expenses.

Financial securtity is more about what you spend than what you earn.

if you keep your job or get another one quickly you can splash out a bit once you feel more secure.

Edit: pay the minimum on the mortgage max into the offset.

getmore4less

you don't give the rate?

£51k mortgage
£24k savings

net £27k

£600-£700pm avaialble

5 year plan you can have a 4 year plan

100% offset max rate over the term

£500pm 5y 4.2%
£600pm 5y 12%
£600pm 4y 3.3%
£700pm 4y 11%

Tony_R

Our mortgage is up for renewal in June and we are probably going to go for an offset.

We originally got a mortgage of £200,000 4.5 years ago, but have been overpaying and it's already down to £150,000. Generally we overpay but at least £500 a month.

We also have our safety buffers which is probably about £12,500 which we don't overpay with. But we thought it would make more sense to stick that in an offset and get the benefits and have access to it when we need it.

Currently our rate is 4.99% but the new offset would be 2.19%.

The mortgage regular payment will drop from £1000 to £770ish, and if we put £1000 in the offset each month, instead of over paying it. We can have access to it, but by my calculations we'll have more in savings than owed on the mortgage by 2022. At which point we'll pay the mortgage off.

Also, I read that as the interest is coming of the mortgage than being paid to us, you don't pay 20% on it, meaning in reality you are getting an even better rate.

getmore4less

Tony_R wrote: »

Also, I read that as the interest is coming of the mortgage than being paid to us, you don't pay 20% on it, meaning in reality you are getting an even better rate.

A common fallacy.

you are just borrowing less.
(on a temp basis if you reuse the offset funds)

Thrugelmir

Lil_Dee wrote: »

I am struggling with the option of repayment or continuing with an Offset. My job is not overly secure, and I am the main wage earner, so I'm not keen to use my savings to pay off some of the remaining mortgage in case things go south.

Channel your overpayments into the offset account until the future becomes clearer. In addition start a belt tightening exercise now. Comb your bank statements and keep a record of everything you spend. then work out how to do it for less. Putting the money saved into the offset.

anselld

getmore4less wrote: »

THe problem with an offset(of thetype you have) is the saving are over the benifits threshold.

This is not an issue with and FD offset. Overpayment savings can be paid into the mortgage account so they do not appear as savings.

Tony_R

getmore4less wrote: »

A common fallacy.

you are just borrowing less.
(on a temp basis if you reuse the offset funds)

I was going by this. Perhaps I misunderstood it.

Will I earn interest on my savings?
The linking of mortgage and offset savings can be very tax efficient because no actual interest is paid on your savings. Instead, mortgage interest is only charged on the net balance of your accounts. This means that you receive a notional interest credit on your savings equivalent to the full gross rate of interest charged on your mortgage, without any tax being deducted.
For example, a notional interest credit at 3.99% would be equivalent to a gross savings rate of 6.65% for a higher rate taxpayer and 4.99% for a standard rate taxpayer.

Taken from this.

http://www.hrbs.co.uk/mortgage-info/offset-information/

getmore4less

THe clues is there,

mortgage interest is only charged on the net balance of your accounts

You borrow less

The rest is spin to make sound better that it is.

Lets borrow an extra £100k, put it in savings, offset it, so I save tax or course not you just have access to more money that you WILL pay interest on if you use it.

Same with sving you allready have.

Lil_Dee_2

Thank you all for your thoughts and input - looks like I'll be sticking to my offset and carrying on with putting my excess/over-payments into my savings account !

Here's to a six year plan that turns into a five or four year plan :beer: