offset mortgage

dd95

could someone please provide (with examples) a layman's explanation of the above? can't get my head around it!!

Browntoa

Forum calculator

https://www.moneysavingexpert.com/mortgages/offset-mortgage-calculator/

I had one , was also my bank account.

When I got paid it was "offsetting" interest until I spent it . Moving all my standing orders to the end of the month maximised the offset . The offset had a snowball effect as each month I was paying slightly more capital off.

Interest only on the mortgage was taken out of the account each month.

I cleared my 25 year mortgage in 10 years

dimbo61

While a few lenders offer Interest Only offset mortgages most are repayment mortgages.
While the Interest rate charged for offset mortgages is nearly always slightly higher than a normal mortgages you use your Savings to reduce the amount of interest you pay each month.
With YBS you have " Friends and Family "
With Barclays you can offset up to 12 accounts

getmore4less

Offsetting is just borrowing less while you have money in the offset accounts.

Regular cash flow offsetting saves very little interest it is the the longer term money that makes offsets work.

dimbo61

Offset mortgage have been very popular in the " Mortgage Free board "
There are also good for self employed people and people who have a lot of money passing through there accounts each month.
It helps if you are a saver

zagubov

Assuming that you'e paying more than the interest off every month they offer a great deal of flexibility in that you can re-borrow money you've been using to pay off the capital cost of the house to meet emergencies.

The downside is if you're too easily tempted to spend the money frivolously you can end up owing a huge amount of capital value of the house before the term ends, so for some people it could be a cause of mortgage debt.

Some mortgage companies offer long-term offset fixes; Coventry is one I'd looked into; FD is another I've actually used.

getmore4less

have a read of this long thread

https://forums.moneysavingexpert.com/discussion/471

There was a time when offsets we a no brainer you could stooze multiple £10ks at 0% on credit cards with no fees and the y were offering lifetime trackers at base+<1% only a little(0.1%-0.3%) margin over the non offset rates at the time.


There is still a place for offsets for those that can use the flexibility but the margins are often higher now.

MaxiRobriguez

There are different types of offsetting available but they all revolve around having a savings account and a mortgage account, and subtracting the total from the savings account from the mortgage account in order to get a tangible benefit. The most common is avoiding the interest by making technical overpayments.

For example, if I have a traditional £100k mortgage on 3% interest rate over 25 years this will actually cost me £142k overall, paying £475 a month.

If I have the same £100k mortgage, 3% interest rate and 25 year term but it is an offset mortgage and I have £100k in my offset account, in the most common offset this means an effective rate of 0%. Your £475 a month stays the same but all of this is now paying off the capital rather than in a traditional mortgage whereby a proportion is paying off the interest as well. With this type of offset, the mortgage is paid off in 18 years not 25.

There are other types of offset whereby rather than reducing the term of the mortgage, the money in the offset account reduces the capital repayments on a month by month basis, so rather than £475 a month as in the above example, you may only pay £350 a month.

Offsets are good for self employed people who can park their earnings in this account for a year until they need to pay tax, and thus get the benefit of avoiding interest that PAYE people wouldn't get as PAYE is tax paid monthly. They are also good for people with lots of cash in the bank which is doing nothing.

Personally I'm using an offset at the moment as a storage of cash which is on hand ready to be deployed to pick up any dips in the stock market. Whilst stocks remain pricey, I sit and wait, but at least whilst waiting the money is avoiding a 2% interest rate rather than getting a paltry 0.5% in a savings account.

getmore4less

If I have a £100k mortgage and £100k in my offset account as well, in the most common offset this means an effective rate of 0%

The use of "effective rate" is misleading.

what is actually happening is you are "effectively borrowing" zero when 100% offset.

ChrisK....._3

best thing we ever did was move from an ordinary repayment mortgage to an offset mortgage, and now now fully paid off which we wouldn't have been on a repayment, an offset mortgage is where any savings you have with bank is OFFSET against any borrowing you have with the same bank, so so if you borrow 100 grand and you have 10 grand in an account, you only pay interest on the 90 grand difference, and that makes a massive difference on the amount of time that you're paying for, you can offset as many savings accounts as you have, in our case we had three, 1 each personal and a joint account that was all offset against our mortgage

dd95 wrote: »

could someone please provide (with examples) a layman's explanation of the above? can't get my head around it!!

dd95

hi chris,

we would look to repay the repayment mortgage (85k) in 8-10 years with 900 paid per month, how would this compare to an offset mortgage? thanks