Advice on offset mortgages please!

djmikeyt

I am mortgage free at the moment with a house worth around £270,000. I plan to retire in 4 years time at age 55. At age 60 my final salary pension (circa £18,000 at today’s rates of pay) and lump sum (circa £55,000) will kick in.

In essence I need somehow to fund the five year gap in earnings after I retire and before I get my pension. I plan to do this partly from savings I already have (and which will grow over the next 5 years I hope) but also to generate extra funds by some other means if my savings prove to be not enough to live on.

My financial advisor has recommended taking out a £200,000 Intelligent Finance Offset mortgage. The deal is fees free except that the valuation fee has to be paid up front but is then refunded shortly after. I will also have to pay the first months payment (circa £1200) up front and won't get it back until I redeem the mortgage. There is also a £300 plus penalty for early redemption before 2009.

My advisor explained that the £200,000 mortgage will go straight into a savings account which pays the same interest rate as is charged on the mortgage. Effectively, he says, until I actually spend any of the £200,000 the interest paid on the one will cancel out the interest charged on the other and consequently, he says, the loan won't cost me a penny until then. He also says I will only have to make one (the first) month's payment until I draw on the mortgage.

Can anyone tell me whether the advisor is correct please? If so, do you agree that because I only want the £200,000 as a backup in case my savings run out, that this is the wisest thing for me to do?

Any advice will be much appreciated.

Cheers

Mike

Mr_helpful

Yes broker is right as long as you select the correct option as regards reducing debt or term on the form

djmikeyt

Thanks very much for that Mr H. Because the advisor filled out the form on-line for me I'm not sure which box he has ticked on the on-line form. Which option should he have selected please?