Offset mortgages???

QueenPrincess

Can someone explain how an offset mortgage works or if there are other types of flexible products available that I should be on the look out for.

I am a contractor with a decent day rate and although I am aiming for comfortable min payment which I can easily afford even in drier seasons. I would very much want the flexibility to overpay and to potentially have 'holidays'/reduced payments if needed (on the premise I have made substantial payments to cover such circumstances).
I know that some lenders offer over payments of 10% without a fee but I assume that this does not mean holidays or reduced payments in other months??

Thanks

sal_III

Last time I checked (several months ago), the offset mortgage rates were substantially higher than the normal rates, making them unattractive, unless you have a really high level of savings/mortgage.

If as a contractor you can't manage your finance well enough to cover 6m+ of bench time, without resorting to beans on toast and mortgage holiday, you might want to reconsider the idea of taking on a massive debt like a mortgage.

getmore4less

The basics of offset are you pool savings against debts so you only pay interest on the net debt.

you put money in a pot that means you are borrowing less, less interest
you take money out of the pot borrowing more, more interest

The great thing is you do not have to ask to take the money out.

Great to store the surplus for the lean times.

Some lender may let you take out/use overpayments.
holidays and reduced payments are not ideal if the lenders mark you for it.

Much more flexibility with the offset


The down side is offsets are not the deal* they used to be, set up costs and rates/margins seem to have gone up but still might be a price worth paying.


* Eg. My Barclays offset was a switch free, no fee, base+0.95% tracker and they did it cheaper after I got mine.

getmore4less

https://www.barclays.co.uk/content/dam/documents/personal/mortgages/CoreRangeCustomerRateSheet.pdf

75% LTV
offset tracker
2.49% £1999 fee lifetime
1.79% £1749 fee 2y
2.09% £499 fee 2y

tracker
1.75% £899 fee 2y

Fixed are bit lower
1.60% £999 fee 2y


Those margins are not that big for the flexibility of offset.

here is the old long running offset thread.
https://forums.moneysavingexpert.com/discussion/471/offset-mortgages-the-numbers&highlight=offset+calculation


Here is the calculation for break even(before factoring fees).

M : mortgage debt
S : standard rate
O : offset rate

C : savings capital
N : net savings rate

(M*S) - (C*N) == (M-C)*O

which simplified is

C(O-N) == M(O-S)
which become a simple ratio check of the mortgage saving against the rate differential

C/M == (O-S)/(O-N)

QueenPrincess

Thanks, so in essence unless the cost makes sense it is better to just utilise the over payments and save anything above that in a separate account should there be leaner months.
@ sal the post is more about flexibility not affordability. Ideally the goal with a mortgage is to reduce the loan and I was weighing if making substantial over payments because I could made more sense than storing funds in a low saving rate while interest on the mortgage grew.

getmore4less

Remember there is a lot of free money out there as well and if on good income you can get a lot of it.

interest free CC sped cards, max them out and stick the money in the offset pay them off when the 0% runs out.

in the good days they were doing balance transfers with no fees nothing beets £40k on interest free offsetting a mortgage or sat in accounts giving interest.

look up Stoozing.