Offset Dilemma AGAIN Sorry...

busy_b

Posted this a few times so sorry to bore anyone but here goes...

I want to offset 36k savings against my 36k mortgage, make no repayments and just leave it there for 10 yrs (term left to pay on normal mortgage) as a safety net.

At any point I feel comfortable, I will pay off the mortgage in full and close it. However my lender Abbey will not allow this as they say it will just close the account. Barclays however, will allow this if I remortgage on an interest only basis (no fees just one interest payment at start and then exit fee when mortgage cleared).

Loads have posted previously for me to just pay it off but I am over cautious, being self employed, I like the idea of the access to my savings in an Emergency.

Has anyone done this before, where they make no payments and receive no interest and just leave the money there?
Am I missing anything and can anyone see any loopholes or potential problems?

I know I'll have to use the 36k to pay off the mortgage eventually but in the meantime, I'll be saving the £400 per month mortgage payment too.

Sorry for posting again & Thanks in advance to any responses...

jill2002

Even if Abbey allowed you to offset your £36k savings against the £36k mortgage - you wouldn't save the £400 per month payment as you continue to make the payment unless the funds are used as a capital repayment. Technically, you would still have a £36k mortgage so therefore the monthly payment is still due.

The only other way to do it is to reduce your mortgage to a small amount, say £3,000 (put £3k in an ISA?) and continue to make payments on that. (I know eventually it will repay the mortgage, but you would have to keep your eye on it) and that would leave the funds still 'available' to you should you need it.

busy_b

Thanks, but the thing is that Barclays do allow you to offset the 36k against the 36k and not pay anything. (Due to the interest cancelling out on the interest only mortgage)

I know I still owe the 36k but I could pay this off at any time if I don't dip into any of it.

I could still place the £400 per month that I was using on the mortgage into savings.

In my head the Barclays option is straightforward but the Abbey option is too confusing.

I just need reassurance that I,m doing the right thing, offsetting as opposed to paying it off and also moving to Barclays...I've spent months mulling it over and I really need to make a decision.

merlinthehappypig

We had an offset mortgage with Intelligent Finance. As Jill2002 says we had to continue to make payments, but no interest would have accrued if we had had the same amount in the savings account as owing on the mortgage.

I think what you are proposing is a very sensible idea. Depending on how your mortgage interest is calculated you might be slightly better off by putting your money in a high interest account, but this gives you a huge amount of flexibility and allows for changes in your circumstances.

I used to earn a fairly high salary and banks were falling over themselves to lend me money. In a short period of time I became seriously ill and ended up having to take medical retirement before I was 40. Things can change very quickly.

Luckily I have my finances fairly well sorted as I would have great difficulty getting decent amounts of credit now. Had I been able to do what you are looking at I would have many more options.

busy_b

Thanks for that, it puts a different perspective on things when you take health issues into consideration and all the unexpected stuff.

That's why I feel more comfortable offsetting as opposed to paying it all off, each year that it's just sitting there, I intend to chip away and pay off some of the capital, until it is actually paid off in full.

It just seems to make more sense offsetting it all and paying nothing, it's paying it off but not, if you know what I mean !

Thanks again, all opinions welcome!

jill2002

Busy B,

Is remortgaging to Barclays really worth the £595 application fee? Would it not be cheaper to understand the Abbey account that you already have? As I said, the money would still be available to you if you needed it - through the available funds that are created when you pay the lump sum off - no further applying for the money back or extra fees to get the money back if you need it - it would just push your mortgage balance back up if you withdrew from the available funds - same effect as having withdrawn from the savings pot.

mrs_deadline

So Jill are you saying Abbey let you reclaim a large overpayment on demand? Would you mind explaining how this works in practice (as you say no applying for the money back?)

busy_b

Jill, there are no application fee's at all with Barclays and it will cost me nothing to move to them.
The difference with their offset is that I make no monthly payments at all.

The money just effectively cancells out the mortgage for as long as I feel comfortable before actually stating that I want to pay it off in full.

I have peace of mind that I can access my savings but I also feel that I am mortgage free.

I really wish that Abbey would do the same as it would be quite straightforward to just switch products with them but they don't.
(The problem with Abbey being that I would need to ensure that there's always an element outstanding on the mortgage and the whole idea was to just forget about it, as if it's paid off).

The only fee I will have to switch is the release fee from Abbey.

jill2002

Busy B

I take it you've got access to a special deal with Barclays then, coz the one on their website says application fee £595 :eek: (make sure they are not just adding it to the loan!) If the deal's as good as you say - go for it. I know I would like to 'feel' mortgage free too.:j

Mrs_deadline - It works like this:-

You take out a mortgage for, say, £150,000 then you make a capital repayment of £100,000 - therefore your mortgage balance is now £50,000. But the credit limit originally agreed is £150,000 so you can still withdraw up to £100,000 - to take the balance back up to £150,000 at any time without having to re-apply for it. This only works with the Flexible mortgage though, not the normal standard fixed or tracker rate mortgages. Whilst you only owe £50,000, you only pay the payments for a £50k mortgage, but when you withdraw the funds back, your monthly payment will increase in line with the amount you withdraw from the 'available funds' and it is put on the same term as the mortgage.

Hope this helps.

Jill.

mrs_deadline

Aha, it works because you're on a flexible deal, I get you now. Thanks!

Busy B, sounds as if you've made your mind up but I also see Jill's point about looking at the overall cost. The advisers can probably do you a full breakdown including the scenario of drawing down a chunk of the 'savings', after all it would be deeply peeving to need them and have to pay over the odds for the privilege. Good luck!