OFFSET MORTGAGE

WAFORD

I am thinking of moving my mortgage to an offset.

I will have about £90k in a savings acct offset against a £155k mortgage.

At present interest has tax deducted at 22%. I am a 40% tax payer (employed) and each year when I do my tax return I am stung for the difference.

Am I correct in thinking that by doing this I will incur no tax liability for interest on savings at all?

Reaper

Correct because your savings earn 0% interest so there is nothing to tax. Your mortgage payments simpy reduce instead.

Rafter

As Reaper says you don't earn interest on your savings any more. You just pay interest on the difference of £65k between your mortgage and your savings.

Your savings won't increase as interest is added, but you will pay your mortgage off much faster (if you carry on making the same payment as you do now each month.

Since the abolition of mortgage interest tax relief, there has been no benefit from holding savings and a mortgage in separate places (unless you have a dead cert way of earning more on your savings that you pay on your mortgage (after tax of course). Wisdom is that you should always hold 2-6 months of income in liquid savings too so that you are covered if you are made redundant or circumstances change.

Sorry - I'm answering questions you haven't asked but hope that gives you all the background!

R

Robert_Sterling_3

Offset mortgages are not suitable in all cases but if ever I have seen a case where at first sight it is obviously OK then this it it. Go for it unless the interest rate is sky high.

payless

is there a reason you want to offset rather than just take a lower loan amount?- would have same effect and
1. likely be at lower rate
2. many deals have drawdown options if funds needed

WAFORD

Thanks for all that - so swift too.

Payless - regarding your question of taking lower mortgage.

I don't like the idea of having no cash in the bank. I know draw down is an option.

The other thing is, I know I will keep paying mortgage as I am now each mth. If I have a lower mortgage it is up to me to replace savings each month. I am much more likely to find other things to spend (wste) it on.