Fix, pay off mortgage completely or offset?

havingaball74

Hello all, I hope you can help...
My partner and I have a joint mortgage (joint tenants) and have put down an equal deposit. We are wanting to fix our mortgage and have found deals with an interest rate of under 2%. I have always liked the idea of being 50/50, but should I use my 60k savings to pay my half of the balance off and be mortgage-free (leaving my partner with a smaller mortgage alone) or invest the 60k somewhere else? Would an offset mortgage work? Thanks in advance.

dimbo61

If you already have a mortgage who is it with ?
I love offset mortgages but they do tend to have a slightly higher rate.
YOUR PARTNER ! are you going to get married? Have kids ?

Thrugelmir

Why not have a declaration of trust drawn up that specifies how the equity in the property is to be divided in certain eventualities. You could then use your £60k to discharge 50% of the mortgage.

getmore4less

stay 50:50

go offset (low cost lifetime)

choose a lender that allows sole accounts and offset your cash.

Decide how you want to share the offset benefit(reduced interest) while you continue to pay 50:50.

havingaball74

Thank you for your replies. Sorry about the delay.

We currently have a mortgage with HSBC (on a tracker but we want to fix). We may get married in the future but certainly no children.

How does an offset mortgage work? Where is the money kept? What interest do you achieve on these savings? What happens if you need to access the money? Why do people offset if the interest is higher on the mortgage?

If the offset mortgage interest rates are higher, wouldn't this penalize my partner and mean that he is paying more than if we had just done a straight fix at a lower interest rate? Wouldn't this complicate issues for him? (We are trying to keep it equal and simple).

Thanks.

getmore4less

offset money get no interest it reduces the borrowing
(ignore anyone that goes on about effective rates they are clueless)

the rate differentials can be quite low 0.x% where x is <4.

if you pick a lender that allows sole accounts to be offset the joint mortgage account then
The money is always yours.
You can add remove at any time.

The trick is deciding how to share the benefit.

One way it to just share it and not worry about who the saving belongs to, continue to make the normal payments to the regular loan 50:50.

That would be a bit like a interest free loan where yo don't actually give the money away just the use of it.

Another is to work out the saving and adjust the payments accordingly it's only a little bit more complicated.


Remember on £60k with current rates we are talking about around £100pm in interest.

havingaball74

Remember on £60k with current rates we are talking about around £100pm in interest.

So, just to clarify, the reduced mortgage loan by offsetting the 60k would mean that we would be paying
£100 less per month in interest? Even with the offset interest rates being higher? We pay £700 per month at the moment on our tracker (around 2%). What would that reduce to?

What happens if you need to use the money? Is it easily accessible/would the benefits reduce automatically?).We are trying to work out whether or not an offset mortgage is better/easier/fairer than just investing my money elsewhere and keeping the status quo.

Your answers mean that we have ruled out the option of me paying my half off.

getmore4less

havingaball74 wrote: »

We are trying to work out whether or not an offset mortgage is better/easier/fairer than just investing my money elsewhere and keeping the status quo.

with an offset it can be all three and you can switch to other options at anytime.

it depends what you think is fair better easier.

I suspect the problem you have you don't have any idea what better/easier/fairer is, define that and you will have a better idea of what you need to do, then understand if there are any other investments that could be better easier or fairer.

TighterThanTwoCoatsOfPain

For what it's worth, I'm fully offset at the moment and in the new year I come to the end of a fixed rate period.

I was torn between a) pay off, b) keep offset facility.

I've decided to just move to a lifetime tracker for no fees, extend the term and remain fully offset. The way I see it, I've got an instant draw down facility available that's cheaper than any loan I can get on the high street. Admittedly it would be secured debt but I'm not about to draw down 200k and buy a yacht or anything daft!

My view is the flexibility of having an offset facility where cost differentials aren't stupid is great.

havingaball74

My mortgage rate has now reduced to 2,74%. This is on a tracker mortgage. My partner and I are 50/50 in the house and he has an emergency fund. I have 70k in savings (50k in premium bonds and 20k in current account). I am happy for us to share the benefits of using an offset mortgage. I can't find any savings/cash ISA accounts that beat this interest rate so my options are:
1. Pay all my mortgage off (my partner still has the other 50% to pay off). The joint mortgage would then still be in both our names but I would pay nothing. I just have to trust that if we were to split up it would be done fairly.
2. I pay off my mortgage and continue to pay half the mortgage (so I have more of an equity in the house over all).
3. Use an offset mortgage with all my savings. I would share the benefits with my partner to keep it simple. But, this way I wouldn't 'earn' anything on the savings (as opposed to if i put it in a S and S ISA). I would also need to see a broker to get an offset mortgage rather than just change my current mortgage with my existing lender- simple.
4. Fix the current mortgage and invest elsewhere.
5. Just offset our joint £120k mortgage with £30k of joint emergency funds and I can invest the rest. by my calculations that is 18% of the mortgage balance. Is an offset mortgage worth this?
In terms of fairness- I don't either of us to be at a big financial disadvantage.
I want a good return on my 65k.
I want to keep the process simple (ideally not involving solicitors etc).
Thanks again.

SouthLondonUser

A few comments:

if you pay off £60k you'd be left with £10k of savings. I assume you are comfortable with this? Of course there's no right or wrong answer, it's very subjective.

You say you'd have more equity with option 2 but you also said you are joint tenants, and AFAIK joint tenants do not have different ownership interests. You probably mean that your partner would recognise you have contributed more, but let me play devil's advocate and suggest you should see professional legal help on this point.

You don't necessarily need a broker for an offset. Just have a look at price comparison websites. I like First Direct's interest-only offset mortgages because the interest-only nature adds more flexibility (which is important to me but may be irrelevant for others). Of course you must bear in mind that the capital still needs to be repaid at the end!

If you know your way around spreadsheets, the proper way to compare options is to run some numbers; many mortgage amortisation templates can be found online. You need to compare all the options, taking into account what you'd do with your money if you don't pay off your mortgage or don't go for an offset.