Offsetting vs Capital Repayments

KiKi

pointypenguin - that's exactly the reason I offset; just so I can access savings if I need to (although it's unlikely). Thanks for confirming what others have said re the fact that the net effect is the same.

I'veseenthelight - the overall effect for me of offsetting is having a tax-free savings account at 6.24%. As you say, the money I'd save remortgaging is so minimal, it's not worth it for me! My mortgage is so flexible, and I use other functions as well as than the offset one. The hassle of changing mortgages isn't worth it.

Thanks to everyone for their responses.

eamonn321

This might seem a stupid question. What if you can make your offset savings equal to your mortgage balance?

OverlandLandy

eamonn321 wrote: »

This might seem a stupid question. What if you can make your offset savings equal to your mortgage balance?

All the payments that you make will be made as 'capital re-payments' ie you will get charged no interest on the mortgage.

If you have less in savings than the total outstanding - that amount is offset.

If you have more in savings than the mortgage outstanding you will receive interest on the amount above the mortgage (and you will then start paying tax on that amount).


For me offset works as I'm not tempted to spent the savings pot, and it is more tax efficent (ie no interest on savings = no tax to pay).

renton_sickboy

I'm confused by this Offset Calculator on the Intelligent Finance site.
Go to http://www.if.com/mortgages/default.aspx and click on "Try our offset calculator" on the right hand side. Pick remortgage, then any mortage and any amount and term. Now when I enter a fiqure of £250 into "Balance at month end" the mortgage term drops by a bit, but if I set that back to 0 (zero) and enter a fiqure of £250 into the "Regular Overpayment" box I get a more dramatic reduction in the term. I would have expected these to result in the same reduction. Any ideas?

Thanks
R_S

Soph

renton_sickboy wrote: »

I'm confused by this Offset Calculator on the Intelligent Finance site.
Go to http://www.if.com/mortgages/default.aspx and click on "Try our offset calculator" on the right hand side. Pick remortgage, then any mortage and any amount and term. Now when I enter a fiqure of £250 into "Balance at month end" the mortgage term drops by a bit, but if I set that back to 0 (zero) and enter a fiqure of £250 into the "Regular Overpayment" box I get a more dramatic reduction in the term. I would have expected these to result in the same reduction. Any ideas?

Thanks
R_S

Having £250 'balance at month end' means that after your salary has gone in to your current account and all your 'spends' gone out, you always have £250 left in your current account, thus saving you around £1.30 per month interest each month.

However, if you make an overpayment of £250 each month, this reduce your mortgage balance by £250 in the first month, £500 in the second month, £750 in the third month etc..., saving you £1.30 interest month 1, £2.60 interest month 2 and so on and so forth, resulting in a more drastic reduction.

Very simplified explanation (not taking into account any accumulative benefits), but I hope it makes sense.

renton_sickboy

ah right, got it now, d'oh.
Thanks a mil
R_S