One Account Customer - Should I remortgage?

italianie

In general I'm pretty useless when it comes to financial planning, but I'm at a pivotol point of paying off my mortgage, so thought I'd come on here and ask for a bit of help from people smarter and financially savvy then I

I'm with the RBS One Account, which you'll be aware has a current rate of 4%, this rate hasn't seemly budged over the last 5 years, despite other mortgage rates falling.

Despite the interest rate not being the most competative, I've kept the account due to the flexibility of overpaying without having to think or do anything at all, wage comes in balance goes down, and I like the way that works. I also knew a large lump some was landing at some point in the future and it's one of the few mortgages that seems to allow to pay in any a lump some of any amount. Well yesterday, the lump has now landed and I've now got a remaining balance of approx -£43,000 owing.

So now what I'd quite like to pay this off in the next 5. I've worked out that my interest would be roughly £143 a month, at 4% over 5 years but this will obviously drop as the lump reduces.

But with rates being so competative at the minute I've had a quick look around and I could switch to something like the First Direct 5 Year Fixed - Fee Saver - so 1.94% fixed over 5 years which no fee's, which seems like a very attractive option and could make much more sense. This mortage seemingly allows overpayments, although I'm not sure what the criteria is on that. There may be something better then this, I'm open to suggestions but like the idea of fixing it for the duration I wish to clear the balance off, so 5 years fixed, 5 years to clear it and be mortgage free.

So it seems a no brainer to move it to the First Direct Account or something similar, however the only thing that might make it sensible to stay with the One Account, is that I can continue to overpay in the simplest way possible, so as my wage goes in without having to think or plan it. Other months I like being to take out more when I need it, for example in October 2016, I did the house up and overspent but it was a one off hit. It's good for emergencies to be able to just draw out if needed, but for the vast majority of months I overpay.

So with the One Account, if I only spend £1000 that month (inc the mortgage interest) and I get paid £2200 that means I take a big wedge of £1200 off the balance. I estimate that for most months I could realistically pay £1000 off, but some months less, it just varies for me month on month as to how much I can overpay.

The only other benefit is if I get any further lump sums coming in (nothing on the horizon at present, but not impossible) then I can just pay that straight into the account to reduce the £43000 or whatever it is at the time, so potentially I could knock off 10, 20 grand or more off overnight.

Lastly, with the One Account, I've pretty much got used to everything being in one pot with mortgage, banking, savings etc, it's just easy, if not the most cost effective option. Don't get me wrong, I'm not that bad with money, that it wouldn't deter me from just getting another bank account and switching the mortgage and moving. I'm just saying I like the way the One Account functions and I can't fault the customer service I've had, they have been excellent.

So I'm very willing to accept my logic is completely flawed, but really what it comes down to is this question. Do I switch to a lower rate interest mortgage and take out a new bank account as that would make the most financial sense, or would I actually pay more off with the flexiblity of sticking with the One Account? It looks like I could probably save around £4000 if I switch, but thats only looking at things on purly an interest only basis without factoring in the other aspects, such as overpayments, lump sums and flexiblity.

Any financial advice would be welcome, if do move I like the idea of fixing it for around 5 years as that allows me to pay the balance off in that period and be mortgage free.

getmore4less

to pay it off in 5 years

£43000 @ 4% needs £792pm going into the account(and not coming out)

interest over the 5 years will be £4515.

less if you overpay/offset more.
The normal spends being in for part of the month don't save much, £1kpm spends max saving is going to be around £100 or £20py.

moving to 1.94% cost would be closer to £2,100 interest a saving of over £2k in 5 years.

if you like the one account facilities there have been plenty of cheaper options using offsets which offer the same and more(just in slightly different form).

you could look at a cheaper offset.

AnotherJoe

Are you a high rate taxpayer?
How old are you?
Do you save much into a pension?

italianie

AnotherJoe wrote: »

Are you a high rate taxpayer?
How old are you?
Do you save much into a pension?

To answer your questions.

• No not a high band tax payer, thankfully miss that bracket.
• I'm lates 30's.
• Yes I put a fair whack into a pension pot, final salary scheme.

italianie

getmore4less wrote: »

to pay it off in 5 years

£43000 @ 4% needs £792pm going into the account(and not coming out)

interest over the 5 years will be £4515.

less if you overpay/offset more.
The normal spends being in for part of the month don't save much, £1kpm spends max saving is going to be around £100 or £20py.

moving to 1.94% cost would be closer to £2,100 interest a saving of over £2k in 5 years.

if you like the one account facilities there have been plenty of cheaper options using offsets which offer the same and more(just in slightly different form).

you could look at a cheaper offset.

Yeah I'm open to explore other options, and I'm not scared to try new stuff and venturing away from the norm. I went from an standard repayment mortgage to the One Account in 2011, which seemed a bit radical at the time, but at that point in time the account interest rate was 3.5% and pretty much in line with most other things. Whether it's been worthwhile I don't know, but not dwell on the past and look at what's best for know.

Totally open to any suggestions, if not I might just look at the First Direct option of the 1.94% fixed over 5 year fixed, I'd also need to get a bank account, as the One Account is my only account. I think this is pretty competative, I've seen slightly cheaper 2 year fixed but it kind of seems the most stable way of doing it without any worries of interest rates going up or having to swap to another product. The fact it's 0 fee as well is attractive, as that give an instant saving on what I'm paying now.

Just in case it helps, I recently did an Experian credit score check and got a score of 999 out of 999 and have about £130000 equity in the house!!

AnotherJoe

italianie wrote: »

No not a high tax payer, just miss that bracket.
I'm lates 30's.
Yes I put a fair wack into a pension pot, final salary scheme so it's worth it.

OK was just checking you weren't missing out on an extra 20% tax whilst saving the 1.79% on mortgage , but it seems you have that covered. Watch out for it as and when you get a pay rise.

italianie

AnotherJoe wrote: »

OK was just checking you weren't missing out on an extra 20% tax whilst saving the 1.79% on mortgage , but it seems you have that covered. Watch out for it as and when you get a pay rise.

Thanks, yeah I'm about 5k away from that and not looking likely to get more, anytime soon! Kind of settled with where I'm at the pay lader, trade of between having a life or moving up and being at work all the time. Kind of content to earn less and have time for family and self, if that makes sense.

italianie

So looking at this a bit more, I suppose what it comes down to is if can I save more with a lower % offset mortgage vs lower % repayment mortgage.

I will probably stick with my existing one account for a couple of months more, just to evaluate the impact of having a substantially reduced mortgage and see how my normal monthly finances are affected.

getmore4less

Offsets/CAMS are not magic

ALL(but a tiny bit) of the savings come from overpayments.

the difference with an offset(and the ONE account) is you can borrow that money back again so have flexibility.


What a mortgage costs is down to how much you borrow and the rate.

Money in the offset accounts all you are doing is borrowing less the same as when you put funds in the OneAccount or overpay a normal mortgage.


Surprised when you said you got this OA in 2011 as the warnings on the OneAccount not being that good started back in 2009.

FirstDirect and Barclays used to be the better options but they are not so hot these days heard a few happy with YBS offset. Their offset+ is handy if you have family/friends that need somewhere to park some money.

the interest rate margin and fees are the key to look out for against regular repayments.

if you want to retain your flexibility you could get a bigger loan and offset funds straight away.

italianie

getmore4less wrote: »

Offsets/CAMS are not magic

ALL(but a tiny bit) of the savings come from overpayments.

the difference with an offset(and the ONE account) is you can borrow that money back again so have flexibility.


What a mortgage costs is down to how much you borrow and the rate.

Money in the offset accounts all you are doing is borrowing less the same as when you put funds in the OneAccount or overpay a normal mortgage.


Surprised when you said you got this OA in 2011 as the warnings on the OneAccount not being that good started back in 2009.

FirstDirect and Barclays used to be the better options but they are not so hot these days heard a few happy with YBS offset. Their offset+ is handy if you have family/friends that need somewhere to park some money.

the interest rate margin and fees are the key to look out for against regular repayments.

if you want to retain your flexibility you could get a bigger loan and offset funds straight away.

Thanks, very helpful to have this explained. Yeah I went with the One Account as I'd had a few people I know recommend the account at the time, they paid off their mortgages early. I think back in 2011 the interest rate was 3.5% and inline with most other products, if not the cheapest, so I thought I'd give it a try and worse case scenario I could switch if needed. I haven't had a bad experience so to speak, the customer service has been very good, but I'm sure there may have been better mortgages that I could have gone with and I could probably have saved money.

I'm seriously thinking the best way forward is to go for a low interest % fixed repayment mortgage over 5 years and the First Direct at 1.94% seems to be a attractive option as there is no fee to switch. I favour 5 years over 2 years as it will allow me to see out the remaining balance without any worries of switching or rate increases. Whether I'd be accepted is another matter, but I have very good credit and about £140000 equity in the house so I may sail through. I think they are pretty selective lenders, but can try for nothing. I might take it out over a slightly longer period say 7 years, just to make the monthly payment around £550 which would be slightly more comfortable then £750 or whatever it is. I don't know whether to just pounce now whilst the rate is so low, or whether waiting a few months is sensible. I'm only thinking this as it might be wiser just to adjust to my new financial situation and work out what I can afford to pay. The First Direct mortgage appears to allow overpayments so I could throw a bit more money at it if needed, and that would probably give similar benefits to having an offset anyway.

Going back to offset's, the pro's and cons I see of going for another offset is that the % of interest paid will be on the current outstanding balance, so it will reduce as the balance reduces. In contrast the repayment option appears to apply the % of interest on the total original balance throughout the life of the mortgage. Whether that equates to something significant in monatary terms I have now idea. The other advantage is the flexiblity and the ability to overpay, I can throw as much as I can at it which might actually let me pay it even earlier then I think. The disadvantage seems to be a higher interest rate, and if I want to switch to another offset most seem to have large fee's. It's a shame the one account interest is not a bit lower, if it was around 2.5% I'd just stick with it but 4% seems too high in comparison to other products out there.

I don't have other savings other then my pension pot and the equity in my home so I actually don't know if that qualifies me for an offset anyway, the One Account is more of a current account mortgage, so that bit baffles me? Or am I misunderstanding it and is the mortgage offset again the equity in my home?

Talking about it and your advice is definately giving me get a sense of direct and I'm favouring switching to the repayment mortage and then overpaying as much as I can. Still a bit on the fence as to whether this is the way to go.