100% Offset

panam

I've been searching for posts that discuss offset mortgages, and a couple of times I have seen the suggestion that you don't tell the provider you are planning to offset by 100%, or that lenders don't like 100% offset.

I can see why that might be the case. In theory 100% offset means no interest payable, with just the product fees. But is there any actual evidence that a lender discourages/bans 100% offset?

Thrugelmir

The obvious question is how would a lender know that an applicant intends to offset a 100%? Secondly how can they stop an applicant doing so if they wished.

The mortgage would still need to be paid every month, combined with the interest earnt on the offset account this would reduce the balance owed. Meaning that the excess cash would have to withdrawn from the offset every month. Though the lender could have a minimum withdrawl limit on the offset.

eddddy

I suspect that the lender would prefer you to be less than 100% offset - so that they earn money through interest payments.

(Just like a credit card company would prefer you not to pay off your balance each month - so that they earn money through interest payments.)

But if there t&cs allow you to be 100% offset, then they can't stop you.


FWIW, Thuglemir seems to be describing a specific offset mortgage product. Others may work differently.

e.g. The mortgage lender collects a direct debit each month, based on what you owe for the last month. If you were offset at 100% for that month, the amount owing is £0 (i.e. no direct debit is collected).

jaybeetoo

Why do you want to offset by 100%?

Thrugelmir

eddddy wrote: »

e.g. The mortgage lender collects a direct debit each month, based on what you owe for the last month. If you were offset at 100% for that month, the amount owing is £0 (i.e. no direct debit is collected).

Not a product I've every come across. Direct debit origination rules alone would make this a an overly complex product to administer. Hence why lenders prefer to collect a fixed sum every month. Only amending direct debits when there is a change in interest rates or change in product. Always recalculating the amount due to repay the mortgage balance owed over the remaining term of the mortgage.

muhandis

Wouldn't it effectively be like the OP having the option of a low-interest flexible line of credit to draw upon when needed. That could be useful.

jaybeetoo wrote: »

Why do you want to offset by 100%?

dwsjarcmcd

muhandis wrote: »

Wouldn't it effectively be like the OP having the option of a low-interest flexible line of credit to draw upon when needed. That could be useful.

That’s exactly the reason I’ve retained mine with First Direct, although I haven’t used it for quite a while, so I should get round to closing it. As I haven’t drawn down anything, there are no repayments to FD and these would only recommence if I did draw something down

adsk

I took out a offset mortgage with RBS about 3 years ago. They didn't bat an eyelid when I said during the application that I wanted to offset 100%. I chose RBS because they had the lowest fee for an offset mortgage.

My reasons for 100% offset was that I would be left with only a few thousand pounds of savings if I had bought my house outright. Having the offset gave me flexibility if a big expense e.g. car/home improvements arose.

I've now settled the mortgage, having built up my savings again.

DennisTenus

I was considering doing exactly this, but then I would have over the £85K protected FSCS limit in a savings account with 1 provider, so is this potentially risky?

Andysandy

It shouldn't be.

“If the mortgage/loan and deposit accounts are separate, FSCS would pay compensation on the savings element up to the limit of £85,000 and the remainder would automatically be set-off against the amount owed under insolvency law."

“So for example, if your outstanding mortgage totalled £150,000 and you had savings of £95,000, you would receive £85,000 in compensation and the remaining £10,000 would go towards the mortgage.”


https://www.moneysupermarket.com/money-made-easy/got-an-offset-mortgage/

DennisTenus wrote: »

I was considering doing exactly this, but then I would have over the £85K protected FSCS limit in a savings account with 1 provider, so is this potentially risky?

DennisTenus

Andysandy wrote: »

It shouldn't be.

“If the mortgage/loan and deposit accounts are separate, FSCS would pay compensation on the savings element up to the limit of £85,000 and the remainder would automatically be set-off against the amount owed under insolvency law."

“So for example, if your outstanding mortgage totalled £150,000 and you had savings of £95,000, you would receive £85,000 in compensation and the remaining £10,000 would go towards the mortgage.”


https://www.moneysupermarket.com/money-made-easy/got-an-offset-mortgage/

Interesting. Obviously it's now £85K not £75K?

So don't have to worry about having the full amount offset either? eg. £100K?