Can I do this with an offset mortgage?

Abatement

So, I'm coming towards the end of my mortgage term with an outstanding balance of about £100k. I have more or less enough in savings (mostly in shares etc) that I could pay off the balance in full.

However, is there anything that stops me from remortgaging with an offset mortage for the £100k and keeping it fully offset (if that makes sense) so that I'm not paying interest. That would then give me the option of fairly cheap access to money if I needed it in the future - i.e. I could take it out of the offset account in the future and would only be paying a (very low) mortgage interest rate on it.

I'd go for an offset mortgage with no fees etc.

Am I missing a downside with this? It would seem to give me a free 'option' on cheap money in the future, but that seems too good to be true...

AnotherJoe

Theres no reason subject to normal lending constraints but of course you'd have to sell your shares so the "cost" of the cheap loan in future would be the opportunity cost of the appreciation and dividends of the shares, or of whatever other investment you might have instead. Minus the risk of that declining of course.

Also, it depends how much money you think you might need to have access to. No point hanging onto the full £100k at say 1.5% if all you end up doing in 3 years time is borrow £20k for a car, when you could have borrowed that at say 4% anyway.

Abatement

AnotherJoe wrote: »

Theres no reason subject to normal lending constraints but of course you'd have to sell your shares so the "cost" of the cheap loan in future would be the opportunity cost of the appreciation and dividends of the shares, or of whatever other investment you might have instead. Minus the risk of that declining of course.

Also, it depends how much money you think you might need to have access to. No point hanging onto the full £100k at say 1.5% if all you end up doing in 3 years time is borrow £20k for a car, when you could have borrowed that at say 4% anyway.

Thanks very much - helpful response. You've hit on exactly the reason behind my thinking. I'd be quite happy to come out of the stock market for now, but I'd quite like the option to go back in at some point - and that's exactly what the offset mortgage route would give me. Does that make sense?

getmore4less

unless you have £100k somewhere else you are selling the shares anyway.

Can you get a term long enough to make this worth while.

the other option is pay it off and rebuild from the new free cashflow.

having the 100k offset is only useful if you have the cashflow to pay it off if you do end up using it to invest elsewhere.

Thrugelmir

Offsets tend to charge a higher rate of interest than other mortgage products.

When you say remortgage. Is this to a new lender?

Abatement

Thrugelmir wrote: »

Offsets tend to charge a higher rate of interest than other mortgage products.

When you say remortgage. Is this to a new lender?

Probably with the same lender, although I haven't fully explored rates available with other lenders. Obviously would want to avoid up front fees (which I can do with exiting lender).

And yes, it would be a slightly higher rate than with another mortgage product, but given it would be fully offset (at least for the time being), I wouldn't actually be paying any interest.

The way I see it, it gives me an easy option for cheap(ish) money in the future if I want it for any reason. I wouldn't ever have to take it up, so it feels like a 'one-way bet' in my favour.

Abatement

getmore4less wrote: »

unless you have £100k somewhere else you are selling the shares anyway.

Can you get a term long enough to make this worth while.

the other option is pay it off and rebuild from the new free cashflow.

having the 100k offset is only useful if you have the cashflow to pay it off if you do end up using it to invest elsewhere.

Term would be about ten years. And yes, I'd have cashflow to make repayments if I used the money elsewhere in the future.

silvercar

I can't see a downside other than these minor points:

a) depending how the offset is structured, it may be that the FCSC only protects the first £75k of your savings pot, should the lender go bust.
b) the fact you have a £100k mortgage will feature on your credit report
c) if you do decide you want access to the money it may be that you could find the money with a lower interest rate elsewhere at the time you need it.
d) if you ever needed to rely on means tested benefits, the fact you have £100k in the bank will limit your access to benefits.

(a) and (d) will depend on whether your lender structures the offset as a savings account and borrowing account or as a single account with zero balance.

getmore4less

a. Setoff applies you get your debt reduced.

c. if ther is money cheaper elsewhere(eg 0% purchase CC) then you use that first

d. Some lenders(Barclays is one and obviously One Accounts if mad enough to go for that) allow you structure the debt/savings so there are no savings to count for means tested benefits.

Abatement

Much obliged, all. So it seems like the downsides arent significant. Just need to work out the best deal I can get without incurring any upfront costs - I expect this means staying with current lender with a rate of 1.99%