What are the downsides of an offset mortgage?

strawb_shortcake

I can't comment on the offset mortgages but we found ourselves in a similar situation this year.
We initially planned to pay off the mortgage but same as you we didn't want to be left with no savings.
We have decided to set aside money to overpay the mortgage each year until our fixed deal ends. At this point we will be able to make a decision whether to pay off the mortgage or knock the years right down and get the mortgage paid off sooner.
I'm leaning towards continuing with a mortgage, its affordable on one wage and at the remortgage point we'll have an additional second full time income and substantial savings.
With interest rates being quite poor at the moment and possibly needing some of the money in 3 years, we decided to max out premium bonds and hope for the best, 3 months later we've had £175 back, but we do have additional money in other saving accounts.

maurP

Currently the rate for our mortgage is at 1.9%.  So for every £ saved in the savings pot it offsets the mortgage at 1.9%; not a bad rate (currently on a savings account). We have had rough times and good times as each recession and growth have come and gone.  But one thing I do not regret is our offset mortgage as it has encouraged us to be realistic about our savings so we could shave off the interests on our mortgage.  We now are at a stage that we have the same amount in a savings pot, that is equal to the outstanding mortgage.  The result is we pay no interest on the mortgage and the regular monthly DD goes to reducing the mortgage even more. Yet, we still have access to the savings if we need it.  There is no way you can get that type of return for your money in good times or bad.

getmore4less

maurP said:

Currently the rate for our mortgage is at 1.9%.  So for every £ saved in the savings pot it offsets the mortgage at 1.9%; not a bad rate (currently on a savings account). We have had rough times and good times as each recession and growth have come and gone.  But one thing I do not regret is our offset mortgage as it has encouraged us to be realistic about our savings so we could shave off the interests on our mortgage.  We now are at a stage that we have the same amount in a savings pot, that is equal to the outstanding mortgage.  The result is we pay no interest on the mortgage and the regular monthly DD goes to reducing the mortgage even more. Yet, we still have access to the savings if we need it.  There is no way you can get that type of return for your money in good times or bad.

Don't be fooled by the savings are getting 1.9% all you are doing is borrowing less(£0 when 100%) till you spend them.

You now have to start thinking in term of borrowing money(when you ever use the offset funds)  at 1.9% which is relatively cheap but there are cheaper ways.

Those that are not 100% offset should bethinking the same  the net balance is borrowing at the mortgage rate can you do it cheaper, and with offset product the answer is almost certainly yes, and for those on very good LTV there are savings product that pay rates that are competative to the very low mortgage rates.

[Deleted User]

silvercar said:

lisyloo wrote: »

I believe there's a downside if you ever need to claim means tested benefits.

If you have say £200k mortgage and £100k savings then you!!!8217;re counted as having the savings.
If you just had £100k mortgage then you have no savings.

I've personally not worried about this because I'm married and we both work and we've never been in a position to claim benefits in the last 28 years (apart from JSA which is not means tested).

It depends how the offset is structured. Some just have a negative balance each month, so no separate savings pot.

That's a CAM not Offset (offset being a separate pot/account) - they are similar but different concepts.
Offset will be deemed to be savings and a CAM can be considered deprivation of assets in certain circumstances.  

csgohan4

my mortgage rate is 1.18% but my S+S Isa has grown a lot more than 1.18%, personal preference, but I would rather my savings be doing something more permanently, but of course in an offset you have immediate access where as S+S are long term investment vehicles.