Should we offset?

busy_b

After much deliberation, we have decided to switch our mortgage from Abbey to Barclays as they offer the offset that we require.

We have a 36k mortgage left to run for 10 yrs and have 44k savings. We were told by Abbey that if we offset all the the 36k savings against the 36k mortgage then it is cleared. We don't actually want to do this as we still want access to the savings over the 10 year period if necessary.

Barclays have stated that they will offset the 36k against our mortgage and we pay nothing in interest, receive no interest but effectively we have access to the 36k over the the 10 yr term if we need it.

There are apparantly no fees to pay (apart from exit from Abbey) and I just want to know if we are doing the right thing. In my eyes, I have cleared my mortgage but have peace of mind that I can access the money if I ever need to (without all hassle of re-borrowing, etc...)

I will be able to pay the equivalent monthly mortgage amount into savings (approx £400 per month) and then at any point that I feel comfortable, I can actually close the mortgage.

Does this sound right?

apk1

yes for you an offset would be perfect, just make sure you do not over offset as you will not receive any interest on those funds.

jaydani

We have an offset mortgage with Abbey called the flexible plus mortgage. You have a savings pot which is offset against your mortgage.

You have access to your savings pot via the internet or phone plus you can borrow based on any equity in the mortgage. This works well for us as we have had periods of needing to borrow money but now we have savings which earn a better rate of interest than most savings accounts (tax free).

You might be able to transfer as you are already with Abbey.

KiKi

Hi there busy b

Offsetting is as you say - you don't get interest on the savings, but you don't pay interest on the mortgage. BUT! You still have to pay the mortgage capital payments! If you don't use the £36K savings to pay off the capital, then you still owe them the mortgage payment (minus the interest) every month.

But what you have described with Barclays is the same as the Abbey; I offset with the Abbey, and I have full access to those funds at any point I need them.

Unless I'm wrong (and I'm prepared to stand corrected!), I'm not sure that what you've written is right - you can offset the £36K against your mortgage (as you can with the Abbey) and you can have full access to the funds (as you can with the Abbey) but that doesn't mean that you stop paying your mortgage payments each month.

What you would effectively do is pay the mortgage payment each month, and then remove the equivalent amount from the offset pot so that you're not over-offsetting. (Or pay the mortgage each month directly from the offset pot which has the same net effect.)

But you can do this with the Abbey already (I do) - so if you don't want the hassle of moving, I suggest you check this out first.

As I said, I could be wrong, I don't claim to know all about this stuff - and I suppose it's possible that Barclays offer a different sort of offset mortgage!!

busy_b

Thanks for that, this is the confusing bit... I really want to stay with Abbey if poss but they insist that once the 36k offsets the 36k then the mortgage is paid off.

The difference with Barclays apparantly is that I remortgage with them with no fees at all, they then place the mortgage on an interest only type and I choose a term, ie 10 years. If I leave the savings there offsetting the whole of the mortgage, I don't need to pay a thing and at any time can pay it all off or have the peace of mind that I can access my savings if I ever really need to.

Apparantly, I set up a DD but they don't collect anything as there's nothing to collect as it's interest only. (They say in short months like February there could be a few pounds interest).

I think I understood them right and I'm gonna go through the paperwork tonight.

Does the above make sense? Thanks in advance...

KiKi

Ah - if you take an interest only mortgage, then yes...effectively the £36K savings offset against the £36K mortgage means that you aren't paying any interest and therefore no monthly payment. But at the end of the ten years you will have to use your savings to pay the rest of the capital off.

(And I'm sure you know this as it's obvious, but bear in mind that if you access that £36k savings over the next ten years, you will need to come up with the rest of the money to pay off the capital after 10 years (you said you would save the equivalent anyway so should be fine).)

You can do this with the Abbey if you have an interest only mortgage with them. Once the offset pot equals the mortgage (which in your case it would), you don't have to pay it off, you can choose what to do with it. So you can get an interest only mortgage with them, with the offsetting facility, and do exactly the same thing.

But yes, it makes sense. If you can't do this with the Abbey, then absolutely move to Barclays. But do try the Abbey again - and tell them that if you can't do it with them, then you will leave. They've been ever so helpful when I've needed to sort mortgage things with them.

Best of luck!!

busy_b

Thanks again, I've been told over and over again that I should just pay the mortgage off but it just seems like a huge step to take.

I'll try the Abbey again tomorrow as it would make a lot more sense to stay with them but our branch manager seemed adamant that we'd always have to be making some monthly payment to them.

I'll re-iterate the interest only part and take if from there. Cheers.