confused over offsett -help

busy_b

My mortgage is with Abbey at the moment.
This is the bit I don't understand. If I put 35k into an offset and only have a 1k mortgage, I actually pay £435.00 per month on a straight repayment ath the moment. That would mean that I would have to keep drawing money out every couple of months in order for the mortgage to remain in place and not be paid off in full.

That is the way that the Abbey Advisors are saying it works. This seems like a headache to me and not a bit like any of the other lenders state that an offset works.

Sorry if I am being totally thick. The only other thing I can see, would be to really reduce my monthly payments but that wasn't the point. I still want to be mortgage free quickly.

MortgagesInc

Could you pay the mortgage each month from the offset account - therefor netting out all bar the small amount of monthly interest? You could then top-up your savings elsewhere from your monthly income that's not now required to pay your mortgage?

busy_b

That's a brilliant idea if it works! Never thought of that. Will check it out. (Now I am totally confused but Thank You again !)

La-Banque

I've been looking at Offset mortgages recently but from I don't have enough savings to make offsetting worthwhile (because you generally pay a higher rate of interest for offset mortgages).
In your case, I would suggest that an Offset mortgage is entirely worthwhile however you do run the risk of automatically paying off your mortgage if you place the full 36K savings into the offset savings account.
The Abbey should be able to advise you of the Minimum amount you need in the mortgage account to keep the mortgage running. Several people here have suggested £1000 however the amount may be as little as £1. You need to check this out.
Depending on how the Abbey operates its Offset account, you will then have a couple of options:
1) Reduce the term of your mortgage. The vast majority of your normal monthly payments (£435) will go towards paying off the mortgage itself. For example, if £10 per month was to pay for the interest (depending on how much you decide NOT to offset) then the remaining £425 would be paid off your mortgage, therebye reducing the term of the mortgage.
2) Reduce the monthly amount you pay. Each month the mortgage lender can work out how much you owe and adjust your monthly payments accordingly. Your mortgage will still run for its full term however your mortgage payments will reduce every month, assuming you don't access any of your savings.
Now here's the thing you have to be careful about: Some mortgage companies allow you to offset your current account and savings account, whereas some will only allow you to offset your savings account. Assuming your offset account with the Abbey only allows you to offset savings then you won't have to worry about paying off your mortgage in full accidentally. After all, you won't get any interest paid to you on your savings. HOWEVER, if your mortgage is offset by your current account as well, you do run the risk of paying off the mortgage accidentally depending on how much money is deposited into your current account each month. For example, if you offset £35000 against the mortgage in your savings account and then a couple of weeks later £2000 salary is deposited into your offset current account, your mortgage will probably be paid off automatically because there is an accumulated total of £37000 in your offset accounts.

I meant to keep that brief!! Sorry its a bit long-winded but I hope its helpful.

busy_b

That makes great sense and that's what worries me. The fact that I would have to ensure that I did not accidently pay it off is too much of a burden. I think that I need to speak to someone face to face at Abbey, as their phone advisors seem as confused as me!

I've spent the day pondering and I'm no better off!.

Offset's seem a great idea until you look into them further.
Thank you for taking the time to reply, I really do appreciate all the advice, etc...

rjm2k1

Don't t they offer the option of using the offset to reduce the repayment rather than the term?

silvercar

If that really is the way they operate, I would be inclined to have say £30,000 in the offset and find another home for £6,000. OK it means that you may be slightly losing out on the difference in interest rates on the £6,000 in another savings account, but at least you won't risk paying off your mortgage!

When the opportunity to remortgage arrives I would move to a lender with a more sensible offset arrangement.

La-Banque

I think the Abbey probably is a good choice for Busy B as I'm pretty sure that they only offset the savings. He needs to watch out for the likes of One Account and Intelligent Finance (to name but a few) as they offset their current accounts as well.
Personally, I'd put as much as possible into the offset savings account and let my money get to work. Any other income should then be kept well clear of the mortgage account. I think looking at similar mortgages to the Abbey but from alternative providers is sensible as there may be some better interest rates out there. Yorkshire Building Society and Hinckley & Rugby Building Society have some good offset deals on at the moment.......

busy_b

I have finally spoken to one of the senior advisors at Abbey who has stated that I can offset the £36,000 against my mortgage in full and basically do nothing (No interest received and no interest charged), which is fine.

However, I asked what I would do with the £425.00 per month that was going to my mortgage at the moment and he says it would be better off in a savings account as it would enable me to pay off the 36k capital amount quicker and gain more interest.

He said that Abbey could not take this amount to reduce the term or the amount as I would then be left with a credit against the account.

The whole point of me placing the whole amount against the mortgage amount is that I will feel that I have paid off my mortgage (and effectively have) but should something go drastically wrong, the money is there for me.

Am I over complicating this and is there a simpler way?

La-Banque

Sounds like a plan - just make sure you make the most of your ISA's and then find the highest interest bearing account you can to bung the monthly £435 into.
Good luck...