Fixed rate or offset with overpayments.

marc5180

I currently have a mortgage of around 140k and I'll be remortgaging in September.
At the min, I over pay £1200 a month but when I come to remortgage I'll be able to overpay 1500 a month due to the interest rate dropping nearly 1.5%.
I have 40k in savings and I've always thought that a 5 year fixed rate with unlimited overpayments (first direct at 2.74%) would be my best option.(I want the debt cleared in 5 years hopefully)
However I've recently been reading about offset mortgages but I can't find a comparison calculator to compare the two of them.

Does anyone have an offset and would they recommend one or should I stick with a fixed rate.

dimbo61

We used an offset mortgage to clear our mortgage in 8 years rather than the 22 we first took out.
My offsetting you still have your £40,000 available you are saving interest.
If you also pay the overpayment into the offset every month you can quickly build up the offset pot.
I Love offset mortgages and have one now with Barclays

getmore4less

You don't need a mortgage calculator(the MSE one gets it wrong if anyone points you at that) it is the interest rates that determine which is best(at any point in time).

There are a few threads around here is one post
http://forums.moneysavingexpert.com/showpost.php?p=59170797&postcount=4

the equation starts as
M : mortgage debt
S : standard rate
O : offset rate

C : savings capital
N : net savings rate

(M*S) - (C*N) == (M-C)*O

which simplified is

C(O-N) == M(O-S)
which become a simple ratio check of the mortgage saving againt the rate diferential

C/M == (O-S)/(O-N)

You can quantify but the real benefit from offsets come from the flexibility with access to the savings.

Set up as the longest term and once 100% offset you have a credit line available for zero cost.

edit add link to the offset mega thread covers most question ever ask about offsets..
https://forums.moneysavingexpert.com/discussion/471

marc5180

Thanks for the replies.

Over a 5 year term, which would be the cheapest.

A 5 year fixed at 2.74% but overpaying £1500 a month or an offset at 2.48% using the 40k savings but still putting the £1500 a month overpayments in?

getmore4less

one fixed one variable you can't tell till the end.

marc5180

The offset mortgage would also be fixed though

getmore4less

Put the numbers in the calc

which ever is best at the start will remain the best if fixed and same overpayment

dimbo61

Just looking at YOUR figures you can get a cheaper offset deal and offset 35% of the balance from day one!
Either overpaying £1500 a month or saving into the offset will soon reduce the mortgage.
New limit to how much is protected in a bank account of £75,000 may become important to you at some stage!!

marc5180

Can 2 current accounts be linked to to one mortgage account to enable the 75k to not present too much of a problem.

getmore4less

depends lender how they set up the offset accounts.

Some allow multiple solo accounts to a joint mortgage, some allow non mortgage holders to offset fund to someone elses mortgage.


Protection is not that big a problem as setoff is used first so the worst that happens is you lose access to the funds and you have a smaller debt.

LisaC22

I have an Offset Mortgage with Clydesdale Bank and i have 3 current accounts, all with savings in them, linked to the mortgage.

This is the 2nd offset mortgage i've had and i think they're great if you have savings.