Offset Mortgage or Mortgage Free

Tomatillo

I've recently been told that I've been left an unexpected gift in a relative's will, the amount is enough that together with a good chunk of our savings we should be able to pay the mortgage off at the end of the current fixed term (in about 6 months). This is a complete surprise especially as we've got another 20 years to go at the moment.  I realise that many people would say keep the mortgage and invest the cash but I feel a responsibility not to do anything too risky with this money and I know that he would have wanted us to be able to get security from it. The only complicating factor is that we currently have children at private school and have always ring fenced enough in savings to get them through to the next sensible stage of education if anything unexpected happens. I'm wondering if it would be more sensible to take out an offset mortgage instead and then fully offset it, meaning that we've effectively paid the mortgage off but have a safety net if there are any problems. That way we don't have to keep as much in cash given the woeful current interest rates and inflation risks. 

I realise this is an incredibly fortunate position to be in (and I am very surprised to be here!) but if anyone had any views on the offset option I would be very grateful. 

george4064

Its really up to you (and your wife), including what your risk appetite is.

You've already pointed out that to maximise financial gain you'd be best to invest that cash and maintain your mortgage as it is.

Alternative option is to pay off half your mortgage and invest whatever's leftover. Bit of a half-half option.

What is your current LTV and what is the interest rate on your mortgage?

Tomatillo

LTV is less than 25% and interest rate 1.84 (coming to end of 5 year fix).
I've always invested rather than overpaid but this money feels like it comes with responsibility to the wishes of the person who gave it.

Tomatillo

Does anyone have any thoughts on whether full offset would be a good alternative to paying the mortgage off?

unkle

I had a £205k offset mortgage in 2008. By around 2015 I'd paid off £105k and was fully offset the remaining £100k. I did this to keep the flexibility, I'm now moving so being able to draw back to £205k (or indeed just use the £100k) is very handy. 

getmore4less

What are the costs of setting up the offset over a dirt cheap regular options at 25% LTV you can get very close to matching the rates with savings options.

How likely are you to need the cash.

The freed up cashflow can be invested.
Offets gives more option to manage the cashflow, like load up an ISA on April 6th rather than drip feed through the year..

Pension might be the best option but not enough information.  

K_S

Tomatillo said:

Does anyone have any thoughts on whether full offset would be a good alternative to paying the mortgage off?

@tomatillo Depending on what the ££ figures are that you're referring to, you could potentially remortgage to a no/low-fee offset product (there will likely still be a conveyancing cost) at around 1.8-2% on a 2 or 5 year fix (or even a term discount product at a higher rate), put the cash in and effectively leave it there as a relatively cheap quasi "line-of-credit" to draw upon as needed. At the end of the fix you can judge whether it is serving the intended prupose and reassess your options.

Tomatillo

Thanks v. much for the replies. I think it's fairly unlikely we'd need the cash but we definitely don't want to risk having to change the children's school at a key point in their education so we want to make sure we always have access to enough funds that if something unexpected happened we'd be able to minimise any disruption to them. I've not looked at offsets before but they look like a reasonable way of doing that without having to keep excessive amounts in cash. I've never looked at them before so just trying to work out whether it is a good idea and whether there's any barrier to us fully offsetting from the start of the mortgage. I've been looking at First Direct and Coventry but both seem to be very different arrangements. 

Tomatillo

Thanks v much K-S, for some reason I didn't see your reply before I posted mine .