Using a loan on an offset mortgage

SimonFin

Hi everyone,
I've currently got an offset mortgage with a 4% interest rate, and have used a couple of interest free credit cards to borrow money at small fee for 2.5 years. I've just had a letter offering me a loan at 3.3% APR, which at first glance seems like it may be worth considering to offset some more of the mortgage, but it's a long time since I messed about with calculating compound interest :-)

At first glance, borrowing at 3.3% to save 4% would result in a saving, albeit not a particularly huge one. The maximum loan would be £15,000, and a quick calculation gives 0.7% of that to be £105, which would be the saving over the first year (to a very broad approximation, not allowing for reducing balance over the year etc). Over 6 years, this could save a couple,of hundred pounds, maybe a couple of months of mortgage payments. The major issue being that when it comes time to balance transfer the credit cards that are currently being used to offset the mortgage, it may make it more difficult to do so.

Have I made a silly mistake on the approximate saving I'm likely to make? Am I right in thinking that I'd probably be better off using credit card balance transfer offers to save money?

To clarify, the main credit card we use is an Amex that does cashback, we got just over £500 cashback last year from it and didn't pay a penny interest (the balance is paid in full each month). There are no other significant debts, a few loans through the offset mortgage for a couple of hundred pounds each - more for making it easy to save up for stuff. I work better at repaying debt that saving money, so I take a loan out when I know I'll want to buy something in the future and put the money in a savings pot (in the offset mortgage, meaning no interest is actually paid), then lay the loan off asap. For some reason, I find this easier to do than to save money. There are no foreseeable reasons my wife and I would need significant credit in the near future (and the balance of the,loan would always be available immediately, as it would be in a saving pot offsetting the mortgage).

Thanks in advance for any thoughts.

getmore4less

called Stoozing

straight rate comparison.

watch those BT fees.

One of the better stooze options is to use a long 0% purchase CC no fees on them

£15k 3.3% 6 years £230pm
£15k offset(4%) reducing £230pm saves £380

SimonFin

getmore4less wrote: »

called Stoozing

straight rate comparison.

watch those BT fees.

One of the better stooze options is to use a long 0% purchase CC no fees on them

£15k 3.3% 6 years £230pm
£15k offset(4%) reducing £230pm saves £380

Thanks, much appreciated!

getmore4less

That saving might be wrong I need to check the method used.

Looks like it is right using a different method.

Dan83

I've read your post, and if the saving quoted above is right, it's a £380 saving for probably 10mind of your time applying for the loan.

I've been thinking about an offset mortgage for a while but know little about them.

Am j right in thinking that if you have the same or more savings then you owe in mortgage you pay no interest?

waveneygnome

OP - are you in a position to find a better offset mortgage?
Are you locked into your current deal?/any ERC?

4% is not a bad rate....but depending upon your circumstances, there are better offsets around.

Lastly....I don't mean to sound patronising, but are you sure an offset is the right product for you? Do you have large-ish sums of money to offset? If not, you may find it better, and get better rates with a 'normal' mortgage.

(I have offset and love it)

SimonFin

waveneygnome wrote: »

OP - are you in a position to find a better offset mortgage?
Are you locked into your current deal?/any ERC?

4% is not a bad rate....but depending upon your circumstances, there are better offsets around.

Lastly....I don't mean to sound patronising, but are you sure an offset is the right product for you? Do you have large-ish sums of money to offset? If not, you may find it better, and get better rates with a 'normal' mortgage.

(I have offset and love it)

Hi,
We're not locked in but need the ability to have multiple saving pots and ability to take out additional loans against the offset. It isn't generally clear if this can be done when looking at different products - we've got the one account, do you know of other mortgages offering similar functionality?

We've currently got over 50% of the balance offset, but the more we can offset the more we can pay off the balance and the sooner we can retire :-)

scoops82

Interesting thread - I though that if you used an Interest free CC to make payments against your mortgage then you would still be charged interest as this is a cash transaction - therefore making it pointless.


Is that not the case or does it depend on who the card is with?


Thank
S

getmore4less

scoops82 wrote: »

Interesting thread - I though that if you used an Interest free CC to make payments against your mortgage then you would still be charged interest as this is a cash transaction - therefore making it pointless.


Is that not the case or does it depend on who the card is with?


Thank
S

Look up super ballance transfer

getmore4less

SimonFin wrote: »

Hi,
We're not locked in but need the ability to have multiple saving pots and ability to take out additional loans against the offset. It isn't generally clear if this can be done when looking at different products - we've got the one account, do you know of other mortgages offering similar functionality?

We've currently got over 50% of the balance offset, but the more we can offset the more we can pay off the balance and the sooner we can retire :-)

Barclays used to work that way but they have been restricting the use of the capital paid off(through an offset account with an OD limit)

First direct can be used on an interest only basis so can just have savings pot(s) you can access at any time

All proper offsets you have access to your offset funds.

MallyGirl

One account works for us. Due to LTV we pay 3.9% which is not the best rate out there but is worth it for the flexibility it gives us. I have a fair bit on 0% cards, effectively 'earning' 3.9% net. We have also used the facility to buy cars and build an orangery. 2 endowments mature in the next 5 months and 1 in a year and all will pay somewhat less than intended - the flexible mortgage has enabled us to pay down a lot so we are less exposed to the shortfalls.
I love my OneAccount