Offset Mortgage

VA2020

Hi all,

Looking for some advice. I am due to start an offset mortgage next month due to some savings I have available which will stay in my offset account for the foreseeable. My mortgage is around £110,000 so not a large amount.

I have some money saved up for a refurb of the house next year to refit the kitchen and bathroom on top of the offset amount but this won't be done until April/May next year. Am I better keeping this extra money in the offset mortgage ontop of my offset savings until next year to reduce the price of the mortgage repayments until next year then pulling the money out for the works in April/may next year when needed? Is that how it works?

This is my first mortgage so unsure if it can work like that.

Many thanks 

MWT

Money you keep in a savings account linked to your mortgage account is effectively earning interest at the mortgage rate so you should find that is better than any savings rate you can get right now...

getmore4less

Don't fall for the effective interest story. 

Offset money just means you are borrowing less till to take it out again.

Unless you have somewhere better to put any spare money just offset it. 

Offsets are no longer the no brainer they used to be, often better with a regular mortgage and saving when you have decent LTV as the setup costs and margins have increased on offsets.
Or just borrow less in the first place. 

MWT

getmore4less said:

Don't fall for the effective interest story. 
Offset money just means you are borrowing less till to take it out again.

It isn't a 'story' it is real, this type of mortgage does suit those with significant savings that they have a planned use for, hence simply reducing the amount borrowed doesn't fit their purpose.

So you get to reduce the amount of interest being accrued on the mortgage while keeping the flexibility of keeping your savings available.

We had an offset mortgage for 25 years and made extensive use of the flexible borrowing and offset facility that came with it.

Certainly not the right choice for everyone, but a great option for those in a position to make use of it.

Thrugelmir

Offset mortgages normally come at a cost in that interest rates are marginally higher. Something to be factored in the longer term. 

getmore4less

MWT said:

getmore4less said:

Don't fall for the effective interest story. 
Offset money just means you are borrowing less till to take it out again.

It isn't a 'story' it is real, this type of mortgage does suit those with significant savings that they have a planned use for, hence simply reducing the amount borrowed doesn't fit their purpose.

So you get to reduce the amount of interest being accrued on the mortgage while keeping the flexibility of keeping your savings available.

We had an offset mortgage for 25 years and made extensive use of the flexible borrowing and offset facility that came with it.

Certainly not the right choice for everyone, but a great option for those in a position to make use of it.

you did not read what I said..

"effective interest story"

Offsets are right for people for various reason but "effective interest" is not one of them

All that is happening is there is lower borrowing while the funds are offset   

You are just borrowing less at the mortgage rate not saving at the mortgage rate.

MWT

getmore4less said:

Offsets are right for people for various reason but "effective interest" is not one of them
All that is happening is there is lower borrowing while the funds are offset   
You are just borrowing less at the mortgage rate not saving at the mortgage rate.

Really just playing with words there, you get to choose if you want your savings to be working for you at the savings interest rate, or at the mortgage rate so pick whichever is better for you.

The point is you can make that choice without having to actually use the savings to pay down the mortgage and thus leave your options open in a way that you cannot do with a normal mortgage.

Always pay attention to the interest cost of having this type of mortgage though as Thrugelmir points out.

VA2020

Thanks all. 
I have around 15,000 to offset for the foreseeable with the hope of topping up £150 a month without needing to touch it but my interest rates are poor with the bank when I've been looking. Then keeping the extra money for a refit in there until next year. 

I think for me it's having the extra money there and being able to access it easily. I did compare to a standard mortgage at 1.64% but this is 1.84% fixed for 5 years with 0 fees plus offset amount in the account in the hope to make some headway with reducing mortgage quicker. 

Really appreciate your advice and will keep this in mind.

Gambler

Which provider?

dimbo61

Looks like first direct.
Great rate and I Love Offset mortgages.
You can build up savings and any work bonus, inheritance, bingo wins, or anything else into the offset account.
When you need the money to pay for a new kitchen bathroom or Car you have the Cash to haggle the best deal possible.
I bet thousands of home owners would love to have 6/9/12 months of Income sat in an offset account right now.
I think £16,000 would be a good pot to aim for and then overpay the mortgage like mad. ( This also gives you the chance to have a Mortgage holiday as you are months ahead in your mortgage payments ) 
We used this facility with YBS a few years ago.

grumiofoundation

VA2020 said:

Thanks all. 
I have around 15,000 to offset for the foreseeable with the hope of topping up £150 a month without needing to touch it but my interest rates are poor with the bank when I've been looking. Then keeping the extra money for a refit in there until next year. 

I think for me it's having the extra money there and being able to access it easily. I did compare to a standard mortgage at 1.64% but this is 1.84% fixed for 5 years with 0 fees plus offset amount in the account in the hope to make some headway with reducing mortgage quicker. 

Really appreciate your advice and will keep this in mind.

So £110,000 mortgage at 1.64% = £1804 interest per year. 
You can then put the £50,000 in a interest paying account (calc. for easy access, could get more for fixed/regular savers/notice accounts) 0.75%* of £15,000 = £112
*Rate is variable

Total = £1692

Offsetting - £95,000 at 0.0184% = £1748

So pretty similar ~£50 better off per year with 'normal' mortgage (so if any fees for 'normal' mortgage offsetting will be better) This also assumes rate of interest gained on £15,000 won't change (which is will, whether up or down?).

Only other thing to consider is if the offset mortgage is interest only and 'normal' mortgage is repayment you would be reducing the capital each month with 'normal' mortgage. So would need to make sure overpaid the same amount each month for the IO offset (and not 'touch' this) or you would end in a worse position after 5 years.