Repayment Offset - Match the balance and draw down. Is there a catch

mebedforduk

Morning all

Looking at a new Mortgage and playing with options

We could buy cash outright but then all the money is tied up in bricks and mortar. So options:

Interest only and invest elsewhere as long as we outstrip offset interest rate 1.85% and obviously the tax advantage. Or

Offset and fund it the same amount

£300K mortgage   deposit £300K cash in offset account

= no monthly interest

End of month 1 first repayment of £1.5K from money cupboard so now the debt is lower than the invested so take £1.5K cash from offset savings and put into money cupboard. Just keep repeating

Its becomes and interest free loan with savings that can be accessed in an emergency at 1.85% cost

House goes up in value as a bonus. Lets say 2% per annum tax free.

Seems too easy. Mortgage broker has never heard of anyone doing it before

TIA

I

getmore4less

A lot of people make the mistake of thinking offsets have effective rate of interest and tax advantages over savings.
What is  happening is you are borrowing less or zero if fully offset.
When you do decide to borrow more the rate is the mortgage rate.
there do not seem to be the cheap lifetime offset so you still have the rate chase so pick a lender with a good history of follow on retention rates on their offset products 
There is the cost of setting up the line of credit if the benefits are worth that.
The main benefit is flexible borrowing that is not effected by circumstance.
I is not always possible to borrow money at a decent rate when you need it.
Another use cash flow  into ISA and pensions

Thrugelmir

If you don't require a mortgage why go to the expense of obtaining one?
Every month out of your disposable income you can save flexibly what ever you like into short/medium and long term savings.
Keep it simple. No need to overthink matters. 

Linton

I dont get the point except that it can give you the equivalent of a loan at 1.85% should you need it.  If the money stays in the offset mortgage it can still be considered as tied up steadily losing value to inflation. It is not an interest free loan because the mortgage company is not lending you any money, they have your £300K which balances the mortgage.

What I did under similar circumstances was to take out an IO mortgage for half the cost of the house enabling me to put a similar amount of money into longer term investments rather than cash savings which should provide a return significantly higher than the mortgage interest rate.

As regards emergency funds, these are something you should be holding anyway. But you should not need anything like £300K.

mebedforduk

Thanks all

Funny how you look at it one way then the other

We had been thinking along the lines that the mortgage is basically paid off as the money is allocated but its still in a semi liquid form rather than in bricks. So say we want to help a kid with a deposit we could and it would only cost us 1.85%

IO is what we have now and we have always been IO people as you are buying the house at todays prices in XXX years time

So if we want to keep liquid cash IO is the way forward

ta

pp556677

I am in the same boat, what did you decide?

My argument is that I want the cash flow and have other income (rental/ investment/bonuses) and can repay in chunks as money becomes available

getmore4less

Just don't tell the lender that's what you plan to do.

if using the cash is a just in case then low cost setup often best,
I there are already uses lined up it needs the numbers crunching for estimated borrowing as the lower rates come with the fees.

pp556677

getmore4less said:

Just don't tell the lender that's what you plan to do.

if using the cash is a just in case then low cost setup often best,
I there are already uses lined up it needs the numbers crunching for estimated borrowing as the lower rates come with the fees.

Ok so should I just say I want an offset mortgage because "reasons"?

getmore4less

People have had mortgage deals declined because they are structuring it as long term but intend to pay it off very quickly and told their prospective lender.