Anything better

sebtomato

Hi,

I have a mortgage with first direct:

* Offset
* 2.49% rate
* about 20% to offset (linked savings)
* LTV below 40%

which is, if I am not mistaken, equivalent to roughly 2% interest rate.

Is there anything likely to be better on the market (variable rate below 2%, with no or low fees, offset or repayment)?

Seb

amnblog

Yes, in short.

getmore4less

sebtomato wrote: »

Hi,

I have a mortgage with first direct:

* Offset
* 2.49% rate
* about 20% to offset (linked savings)
* LTV below 40%

which is, if I am not mistaken, equivalent to roughly 2% interest rate.

Is there anything likely to be better on the market (variable rate below 2%, with no or low fees, offset or repayment)?

Seb

you are mistaken

it is the same as borrowing 20% less on 2.49%

sebtomato

getmore4less wrote: »

you are mistaken

it is the same as borrowing 20% less on 2.49%

Well, if I borrow £100 @ 2.50%, I would pay £2.50 interest

If I borrow £80 @ 2.50%, I would pay £2 interest, so therefore a 20% offset is equivalent to 20% reduction of actual interest rate paid.

2.50% - 20% = 2%

sebtomato

amnblog wrote: »

Yes, in short.

Could you please advise further?

I haven't been able to find tracker mortgage below 2%, without a large fee upfront, or an attractive initial rate for a short period...

My current offset mortgage is a lifetime tracker 1.99% + BOE rate

getmore4less

sebtomato wrote: »

Well, if I borrow £100 @ 2.50%, I would pay £2.50 interest

If I borrow £80 @ 2.50%, I would pay £2 interest, so therefore a 20% offset is equivalent to 20% reduction of actual interest rate paid.

2.50% - 20% = 2%

NO.

20% offset on £100k is the equivilent to borrowing £80k

to believe anything else is deluding yourself.

edit: if you really want to do it the other way you have to account for the lost interest

the other delutions people have are, my savings are earning my mortgage rate and paying fees up front saves money.

sebtomato

getmore4less wrote: »

NO.

20% offset on £100k is the equivilent to borrowing £80k

to believe anything else is deluding yourself.

Well, I am sorry, but I am not deluding myself, but maybe you are not too good in maths (or giving advice on offset mortgages).

Offsetting 20% of the amount borrowed is equivalent to paying an actual interest rate 20% lower than the one contracted.

This is used to compare like-for-like mortgage rates, and in my case, I need to find a mortgage which has a rate lower than 2% to beat my current offset mortgage rate of 2.49% (with 20% of the amount offset by savings).

And yes, my savings are earning my mortgage rate (net of tax): if I have £100 spare at the end of the month, I can either:

* put it on an account linked to my offset mortgage (and reduce the interest paid on my mortgage by £100, therefore earning 2.49% by reducing interest owed)
* or I can put on a different savings account that would need to earn 2.49% after tax, to beat offsetting.

getmore4less

Maths is fine and have used offset morgage for years.

All offset does is reduce borrowings.

If you use the "effective" interest rate you will get the wrong answers when comparing.

If you take out a mortgage for £100k when you could have taken one for £80k and immediately offset £20k you don't magicaly create £20k earning interest.

getmore4less

The other problem with the logic is in one breath the savings are getting the mortgage rate and in the comparison they are worth nothing.

By ignoring the savings rate and just looking for something better than the effective rate you may miss out because the comparison is wrong.

£100k @ 2.5% £20k savings so £80k borrowing £2000 interest.

get a deal for 2.25% for the full £100k new interest £2250.

£250 off the £20k needs a net rate of 1.25%, readily available even for 40% taxpayers.

getmore4less

If you dig out the long running offset mortgage thread I have put the generic calculation in that for working out what the rates need to be for any combination of offset rate, savings rate, non offset rate, capital borrowed offset savings.

It's a simple ratio. so as long as you know 4 of the 5 variable you can work out the 5th.

Depending on the best saving rate you can get there will be rate above 2% that will be better than the current arrangement(based purely on the maths.

The soft factors of offset make them worth a bit more than the best combination.

sebtomato

getmore4less wrote: »

All offset does is reduce borrowings.

... and therefore the effective interest rate being paid. Given my savings offsetting my mortgage, I am no longer paying 2.49% of my borrowings, but 2%.