Offset mortgage end of term - suggested moving on Offset SVR is best deal?

izawa

Hello,

For the life of me I can't understand this. Please help me understand.

I am on a 2yr offset with Norwich BS which comes to an end this October. I am lucky enough to have Offset savings is pretty much same as Offset mortgage. This means my monthly repayment hardly consists of any interest (almost nil interest) and most amount is towards capital.

I called up to move to a different deal and I was told that if I intend to keep my Offset savings balance as it is, then me being on "Offset SVR" (4.5%) will mean lower monthly payments that being on a new "Offset fixed" mortgage deal (1.75%) which didn't make any sense to me. He explained to me that the reason being that while the interest calculated is higher on SVR than fix, the Offset savings benefit on SVR is significantly high that fix which explains the net lower amount paid on SVR.

Example (amounts are disguised for privacy)

Outstanding mortgage = £185,000
Mortgage savings balance = £184,000 (Almost same as ourstanding)

Offset SVR 4.5%

Interest £860
Benefit on savings £640 

Net mortgage £220

Offset fix 1.75%

Interest £600 

Benefit £250

Net mortgage £350

--------------------

Anyone came across this situation?

getmore4less

That will probably be the way amortization spreads the capital payments.

You need to look at how the net payment changes over time.

dimbo61

Is there a fee to take the new 1.75% offset deal ?
Do you want to keep the mortgage as you now have the offset savings to clear the whole mortgage ?
Do you want to keep the mortgage/offset accounts as a cheap and easy way to access money for say a new car or extension etc ?
Well done on building up your savings to become fully offset 
👏

amnblog

If interest on a 4.5% rate is £1,100 per month (which is about right)

Then interest on a 1.75% rate (well below half the 4.5% rate), cannot be above half of £1,100 at £600

(£437 per month would be in the ball park)

Also, if fully offsetting at the full rate, 'savings benefit' is clearly not the full offsetting effect.

The figures and terminology here are being confused.

Either:

Have Norwich BS explain this again accurately

Put the detail in front of a Broker who can explain why Norwich BS are confusing you

getmore4less

Example (amounts are disguised for privacy)

Probably explains it if they were just guesses

£300k  first months interest 
4.50% £1,125
1.75% £438

the rate and full term will determine the default payment.

Then it will depend on if you get a choice to reduce payment or keep payment the same.
eg 30year terms with £300k

rate	fees	payment	add fees	interest only
4.50%	£0.00	£1,520.06	£1,520.06	£1,125.00
1.75%	£0.00	£1,071.73	£1,071.73	£437.50

The capital payment on that amortization schedule would be 

4.50% £395
1.75% £634

which is probably the effect being seen.

That month 1  by month 60(5 years)  they become
4.50% £495
1.75% £692


The higher rate starts lower but goes higher at the end of full term when most of the payment is capital.

I don't think lenders recalculate the amortization based on the offset funding
100% offset on £300k over 30 years that would be a payment of £833.


without knowing the definition of the terms it is a guess.

izawa

Ok, more accurate figures and updated in main thread.

Outstanding mortgage £185,000

On 4.49 SVR

Interest £860
Benefit of fully offset in savings £640 

Net mortgage £220 [Pretty much nil of this amount is interest]

--------------------

On 2 year fix 1.75%

Interest £600 

Benefit of fully offset in savings £250

Net £350 [Pretty much nil of this amount is interest]

izawa

dimbo61 said:

Is there a fee to take the new 1.75% offset deal ?
Do you want to keep the mortgage as you now have the offset savings to clear the whole mortgage ?
Do you want to keep the mortgage/offset accounts as a cheap and easy way to access money for say a new car or extension etc ?
Well done on building up your savings to become fully offset 
👏

Thank you. I think it will be better if I keep the amount as it is incase I need for a rainy day.

getmore4less

izawa said:

Ok, more accurate figures and updated in main thread.

Outstanding mortgage £185,000

On 4.49 SVR

Interest £860
Benefit of fully offset in savings £640 

Net mortgage £220 [Pretty much nil of this amount is interest]

--------------------

On 2 year fix 1.75%

Interest £600 

Benefit of fully offset in savings £250

Net £350 [Pretty much nil of this amount is interest]

£185k first month interest
4.49% £492.
1.75% £270.

I think your interest line may really be payment not interest.

What's the full term?
( Not on my computer to work out what it might be)

getmore4less

One thing I did with my 100% offset was reduce the balance in line with an amortization schedule that still had an affordable payment should I use all the offset funds.