First Direct Offset

audir

Hi all,

I'm due to remortgage early next year, and i'm considering a FD offset mortgage. My objective is to have sufficient funds to clear my mortgage asap, but have the flexibility of the offset in having easy access to the cash.

I meet the FD critieria (earn over 60k), my home is valued at c.250k and my outstanding mortgage amount will be 54k. I will have 15k in savings initially to offset.

The interest only aspect of the mortgage (fixed at for 2yrs) means that i'll be paying around £150 a month in interest charges for 2yrs.

During that 2yrs I'm intending on saving between 2 and 2.5k additionally per month into the offset account - so within 18months (i.e. still within the fixed interest period) my savings will equal my outstanding balance - i will then, probably, pay it off completely (i may wait til after the 2year fixed is up to avoid the early redemption charges).

Now my question is,a) does this sound like a sensible thing to do? and b) given how strict FD are with their offset accounts, am i likely to be of interest to them?

Thanks in advance...

anselld

If your objective is to pay off completely then the additional cost of an offset is probably wasted. Get a cheaper rate repayment and make overpayments instead.

Mortgage Companies don't really like people paying off so quick. I would keep quiet about that aspect and tell them you want 15 years or something sensible. Then make the overpayments and pay off early.

audir

Thanks for the reply. Problem with repayment is that it ties the cash up. I like the flexibility of having all the money available to me whenever i want it.

Once my savings = mortgage amount - i'll owe them nothing each month in monthly interest payments, yet have access to 50k+ in my savings account should i need it.

anselld

audir wrote: »

Thanks for the reply. Problem with repayment is that it ties the cash up. I like the flexibility of having all the money available to me whenever i want it.

Once my savings = mortgage amount - i'll owe them nothing each month in monthly interest payments, yet have access to 50k+ in my savings account should i need it.

I agree it is useful. It also means you can stooze cash in higher interest savings accounts all the time you can get a better net % than your mortgage interest rate.

jaybeetoo

anselld wrote: »

If your objective is to pay off completely then the additional cost of an offset is probably wasted. Get a cheaper rate repayment and make overpayments instead.

What additional cost?

My FD offset is no more expensive than a repayment. It is a brilliant product provided you are disciplined at paying it off.

anselld

jaybeetoo wrote: »

What additional cost?

My FD offset is no more expensive than a repayment. It is a brilliant product provided you are disciplined at paying it off.

For example ...
2 Year Fixed Fee-saver repayment 1.99%
2 Year Fixed Fee-saver offset 2.49%

FD generally have a slightly higher rate for their offset products vs the equivalent repayment product.

It is a great product, I agree (I have one), but only if you need/want the flexibility.

getmore4less

FD used to have small margins on their offset it has got a lot wider recently

was there ever a time when the rates were the same?

Rollinghills

The alternative would be to find a 2 year deal with the cheapest rate and see if you can save the money separately at a higher rate, in ISAs etc, with your LTV and good finances it might be doable.

Thrugelmir

audir wrote: »

Now my question is,a) does this sound like a sensible thing to do? and b) given how strict FD are with their offset accounts, am i likely to be of interest to them?

You only owe £54k. So have you factored in the costs of remortgaging to your calculations. Valuation, legals, exit fees etc.

audir

Thanks for the replies guys.....you've made me re-evaluate this.

I've called my existing mortgage provider - and when the introductory rate expires early next year, i can make unlimited overpayments.

I think im gonna build up a little amount of cash as the "emergency fund" this year and then pile the rest into overpayments with my existing provider next year - this will avoid the fee's and stress of moving providers.

Not as flexible as the offset idea - but seems to make more sense.

getmore4less

What's the follow on rate