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Offsetting Mortgage
Norlye
Posts: 17 Forumite
My wife and I are about to receive £150000 lump sum.
We have a £190000 mortgage.
We know absolutely nothing about investing.
We have a £190000 mortgage.
We know absolutely nothing about investing.
Whilst we will pay some of our mortgage down we can’t totally clear it & are also loath to use all the money paying it down as it would be good to have some spends & a emergency fund.
What are people’s thoughts on putting the remaining money into a offset mortgage as current saving rates are so low & we really don’t want to be getting involved with IFA costs on what will probably be £50000.
Are there any obvious drawbacks to offsetting. I have looked through various sites, the MSE article is about 10 years old when I googled. The majority of search results are from Banks & Building Societies & not sure they will be impartial.
Thanks for any thoughts, opinions or pointers.
What are people’s thoughts on putting the remaining money into a offset mortgage as current saving rates are so low & we really don’t want to be getting involved with IFA costs on what will probably be £50000.
Are there any obvious drawbacks to offsetting. I have looked through various sites, the MSE article is about 10 years old when I googled. The majority of search results are from Banks & Building Societies & not sure they will be impartial.
Thanks for any thoughts, opinions or pointers.
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Comments
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What’s your current LTV? What’s your current interest rate? When does your current fixed mortgage deal expire?"If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett
Save £12k in 2021 - #027 £15,268 (76%)0 -
1.57 fixed for another year.
70% LTV
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Okay, so your house is worth approx £270k and you have an outstanding mortgage of £190k (70% LTV) fixed for one year @ 1.57%.Rather than going through the complexities of an offset mortgage, I would consider looking through the numbers for when you remortgage in a years time and think about making a large overpayment to bring your LTV ratio down so that you can lock in a lower interest rate. Let’s say the best interest rate available to you at a 50% LTV, then I suggest you stop the OP there rather than overpaying more to reduce your LTV but won’t affect your mortgage interest rate.
With the remaining savings I would invest it, most certainly will beat your mortgage interest rate over a 10 year period. Think about stocks & shares ISA and/or pension, depending on your circumstances.
This combination of reducing your LTV to ‘unlock’ the best mortgage rates combined with investing your savings in a global diversified fund is typically the most effective way to make your money work for you and achieve highest return from your overall money."If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett
Save £12k in 2021 - #027 £15,268 (76%)1 -
The best returns are likely to come from investing through your pensions, with the associated tax relief. Some could be used to pay off part of your mortgage and could also be used to replace some of the pension earnings that are foregone.0
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Thanks Nottingham Knight & George4064.
Additional info, dont know if it will change your thinking-
We both work in the NHS so in 10 years time, we retire within 9 months of each other,we will be getting 2 final salary pensions & very lucky for us will in fact be financially the best we have ever been in our lives.We are just thinking with saving rates so low & as we didn't think we wanted to do investments, as George says 10 years or no,is the offset better value than the instant access & Premium Bond accounts that we have been looking at
We want to access the money & plan to have it spent before ourpensions come in. We will be able to retire at 60.0 -
If you are internding to spend it within 10 years then investing is probably not the best option, although that is dependent on the spending profile. If you were planning on spending it evenly over 10 years, or most of it in Years 1-2, or most of it in Years 9-10 then your choices would be different.
As to whether Offset , or PBs and Savings Accounts or Pension / Investments are best you will need to fire up your Excel and work throuhgh some numbers for a reasonable indication.
Offset mortgage rates are generally higher than standard mortgage rates.
Is the 150k to be used to pay the mortgage off or is it for spending?
For many people who have a DB pension investing is a whole alternate universe that they don't underdstand and have reservations about. We were the same (LGPS DB schemes) but looked into it and now have invested pension pots alongside our DB pensions. We have benefited from the tax advantages and investment growth.
At the very least you could open personal pensions, get the tax break and hold cash inside the pension if you don't need access until age 55+. 25% tax free on the way out with the remaining 75% as taxable income when taken so a 6.25% return for BR taxpayers, even more for HR taxpayers.
If you go down the pension route be aware that if you take even 1p as taxable income then you are limited on the amount that can be contributed to any pension at £4k per annum so your NHS DB scheme would be at risk. What most people do in that situation is take the 25% TFLS and Zero Taxable Income if they need to withdraw whilst still contributing to pensions.0 -
Many new investors , see it sometimes in black and white terms and that somehow all their money could disappear.
Firstly there is nothing to stop you just investing an amount you feel comfortable with , be that £5K, £20K and leave the rest in PB's or whatever . In fact many investment sites will accept £25 a month !
If you to stick to mainstream investment funds then there is no possibility to lose all your money and you can choose a risk level that suits you . Basically more risk means more potential growth but more ups and downs on the way . If you only want to beat inflation say + 1% then you can go to lower risk.https://www.moneysavingexpert.com/savings/investment-beginners/
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All depends on circumstances but with 10 years to retirement and a LTV still at 70% then it seems reasonable to use the lump sum towards the mortgage once the fixed rate expires to give you security for the rest of your life. I don't understand the mention of spending it? If you are already making the most of your workplace pension and if you have accrued enough benefits to give sufficient index linked income in retirement then I don't see much point investing the money for the possibility of higher or lower return. In terms of keeping that much accessible via an offset mortgage it does seem a bit excessive but if it doesn't cost you anything then I guess it's OK as you would need to keep some as an emergency fund anyway. You could perhaps use the spare income that was previously used for higher mortgage repayments to either overpay the remainder or gradually build up side-investments in pension or ISA wrappers with the benefit of pound cost averaging.0
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I have an offset account and will be topping it up when I can. The main reason I went for the offset was so I wouldn't need to remortgage when the times comes, I can simply let it revert to the standard rate knowing I'm fully offset. It also means I have a pot of money I can get to easily if I need it in an emergency (bearing in mind your interest rate will be the standard so much higher than a deal). As I pay the mortgage down I'll be removing a similar amount and investing that each month.
I too work in the NHS and looked into the private pension but I calculated the annual allowance and found I was quite high so I would only be able to add about £8k a year which seemed pointless...0 -
Pangolin76 said:I have an offset account and will be topping it up when I can. The main reason I went for the offset was so I wouldn't need to remortgage when the times comes, I can simply let it revert to the standard rate knowing I'm fully offset. It also means I have a pot of money I can get to easily if I need it in an emergency (bearing in mind your interest rate will be the standard so much higher than a deal). As I pay the mortgage down I'll be removing a similar amount and investing that each month.
I too work in the NHS and looked into the private pension but I calculated the annual allowance and found I was quite high so I would only be able to add about £8k a year which seemed pointless...
You are in the fortunate position where that is "pointless" and are therefore prepred to forego the benefits.
Would you walk past £1.6k laying on the footpath each and every year (assuming you are a BR taxpayer) as it would be pointless picking it up?3
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