Help choosing between offset and normal mortgage

darwin

Hello,

We're looking to buy a property and would be taking out a loan of £319,000.

After paying our deposit and moving costs we'll have around £50k in savings and would hopefully be able to save around £12k per year.

I'm trying to decide whether we'd be better off getting a normal five year fix at 1.58 or a five year fix with offset at 1.99.

The MSE calculator shows we'd be better off with the normal five year fix but the Excel spreadsheet made by @Locoblade showed the offset would be better.

Any advice would be welcome.

Thanks

ec9wrr

Are you fixing because you think interest rates will rise over the 5 years? If so, factor in that your offset is fixed, but interest on savings may pay higher rates in the future making offset pointless.

Also consider the benefits of SIPP or Investment Stocks and Shares ISA.

darwin

Yes fixing as I think rates probably will rise over the next five years. Good point re increases in savings rate reducing the benefits of the offset.

dimbo61

If savings rates do increase you can then take money out of the offset account and pay into a better paying account Simples really.
Do you like the idea of having a big lump sum of money with easy access ?
As you can also save say £1,000 a month on top you can quickly build up a large offset pot if you new to buy big items with CASH !
Such as a new car or kitchen, extension etc
You are also reducing the difference between the outstanding mortgage balance and your offset savings.
If you can get say 3/4% from a cash ISA you take money out of the offset and put into the cash ISA.
PS I Love offset mortgages and so do many other people on the Mortgage Free board ! There must be a reason.

Tom99

darwin wrote: »

Hello,

We're looking to buy a property and would be taking out a loan of £319,000.

After paying our deposit and moving costs we'll have around £50k in savings and would hopefully be able to save around £12k per year.

I'm trying to decide whether we'd be better off getting a normal five year fix at 1.58 or a five year fix with offset at 1.99.

The MSE calculator shows we'd be better off with the normal five year fix but the Excel spreadsheet made by @Locoblade showed the offset would be better.

Any advice would be welcome.

Thanks

The interest gap is too large and your savings too low to make that offset deal pay.
You will be paying more in interest even after offsetting your savings so the offset deal is going to cost more and, in addition, you have no savings interest.

darwin

I definitely see the appeal but according to the MSE calculator the interest on an offset would cost me ~ £4k more over 5 years than a 5 year fix and a normal savings account.

That seems like quite a lot for this flexibility but maybe I'm working it out wrong?