Offset mortgage vs paying in cash

MoneySavingUser

I am planning to buy a house and fortunately I am able to pay in cash. However, I saw something about offset mortgages one day and was wondering if there was any advantage in getting one of these instead.

Scenario A

This was my original plan. To pay for the house in cash and then save/invest the equivalent of my current rent/what my mortgage would have been and build up savings again.

Scenario B

Get an offset mortgage and offset it entirely to eliminate interest. I would make the monthly payment (potentially if it was an interest only mortgage I wouldn't need to pay anything until the term ended?). Effectively I'd be getting an instalment plan to pay for the house with no interest apart from the opportunity cost of the lost interest the savings tied up in the offset. But a) interest rates are low at the moment b) if I paid cash for the house as in scenario A I wouldn't have the savings and couldn't earn any interest anyway.

Cashflow - I could take some of the savings out if I needed to.

Scenario C - Some banks like Barclays let you offset against a cash ISA. If I was to withdraw funds from the ISA to pay for the house I would lose the advantage of the tax-free status of the previous years contributions. By using the ISA as the offset I could preserve the tax-free status of those funds.

Scenario D - It seems some building societies such as Yorkshire let you also offset against family members savings. Do Scenario B with other peoples money!

To be honest I will probably go for scenario A in the end. But was curious about this and would be interested in comments and any other scenarios which could be done.

(Additionally could I so Scenario A and then take out an offset mortgage on the property later?)

ViolaLass

Offsets will involve fees. Do you have the required income too?

MoneySavingUser

ViolaLass wrote: »

Offsets will involve fees. Do you have the required income too?

Yes I do .

AnotherJoe

I used to have an offset mortage but that was in the days when rates were 5% and it was better not to receive any interest. Now it's just 1% or so I think the only possibl benefit is, if you are say buying a car you can get a loan at that sort of rate. Otherwise I wouldn't bother.

elliebee

I had an offset mortgage approved recently by RBS. I had enough in savings to cover the full amount of the outstanding mortgage so I was basically paying my mortgage off interest free whilst still having access to my savings should I need them.

The mortgage advisor suggested that as my outstanding mortgage was reducing each month whilst the balance of my savings stayed the same, I should regularly withdraw some savings to an interest bearing account. Otherwise it would be sitting stagnant. As long there was always enough left to equal the mortgage balance.

Of course I got no interest on my savings but I would have got less interest than I was paying on my mortgage so this was a no brainer for me.
Fees were reasonable. Under £500
Would definitely recommend this if you can do it
Natwest do it too

ejv

Scenario B

Get an offset mortgage and offset it entirely to eliminate interest. I would make the monthly payment (potentially if it was an interest only mortgage I wouldn't need to pay anything until the term ended?). Effectively I'd be getting an instalment plan to pay for the house with no interest apart from the opportunity cost of the lost interest the savings tied up in the offset. But a) interest rates are low at the moment b) if I paid cash for the house as in scenario A I wouldn't have the savings and couldn't earn any interest anyway.

Cashflow - I could take some of the savings out if I needed to.

Scenario C - Some banks like Barclays let you offset against a cash ISA. If I was to withdraw funds from the ISA to pay for the house I would lose the advantage of the tax-free status of the previous years contributions. By using the ISA as the offset I could preserve the tax-free status of those funds.

I've been on scenario B,past 6 years, paying no interest at all.I'm a high tax payer, and my offset interest is 3.69%.To get that interest, I have to have a 6.15% paying investment.So I just offsetted my savings.This always give flexibility to avail cash (for eg:to buy a car)just on a click, and you pay the interest of the mortgage , which would be lesser than a personal loan.

For Scenario C, I'm keen to know the thoughts of forum, as I'm seriously considering this.Barclays is the only bank which allow ISA to be offsetted.

getmore4less

You pay a bit upfront for extra flexibility and access to cheap funds.

There are still opportunities to earn more than the interest rate on the mortgage with the offset you can shuffle the money into these opportunities and back again.


if you move your funds into the relevant lenders offsetable ISA you keep that status and if you are into S&S you have the cash flow to move funds around to buy decent chunks

longest term highest mortgage(at sensible rate) and you have a one off cost for that long term flexibility.

You also have the potential of another move up the value covered by the total cash + lending available, if they will let you port.

SavingSteve

Scenario B, everyday of the week if it was me, purely to have access to the cash should you want / need it. I'd go for a lifetime product (like Coventry's Flexx for term) so you pay fees only once.

You'll be paying the fees, maybe £1-2k for the privilege, but the ability to access the funds whenever you need is worth it, at least it would be to me.