Offset mortgage calculation

330d

Does anyone what the calculation is to work out the saving on an offset mortgage?

I know there are online calculators but would prefer the sum.

Thank you

dimbo61

Your mortgage balance increases every day as Interest is added and decreases when you pay the mortgage once a month !
If you add or take money out of your Offset account then the Offset Mortgage balance can also change daily.
I Love Offset mortgages having now had 3 with YBS, Woolwich and now Barclay's.
The ability to keep a large sum of money in an offset account which we can tap into when needed and which also reduces the amount of Interest we pay on the mortgage debt each month.

Trying to work out how much you save each Day/Month/Year can be somewhat difficult

However our monthly statement from our lender breaks down the savings each day

330d

Thanks. I presume your on a offset tracker with Barclays?

izawa

Offset mortgages are nice if you have 20% of mortgage balance as savings. Think of this, your average savings balance across the month, it gets deducted from the outstanding mortgage balance. The interest is calculated on the remaining.

dimbo61

Yes we have an Offset mortgage with Barclays.
It was on a tracker deal 
We get a monthly statement which tells us how much we saved each day by the offset accounts  and how much interest we paid 

getmore4less

Barclays add the interest once a month, based on the daily net balance accumulated over the month

daily interest with  monthly compounding

In many cases the default interest day is the end of month(appears on the 1st) and the payment date was the 16th.

One useful feature with Barclays is you can load up and ISA and offset that if you don't have any other ISA


One simple calculation for an offset mortgage is what offset pot is break even.

You need to know the saving rate the offset rate and the regular rate to decide if the offset works.

simple ratio of the rates and amounts.

M : mortgage debt
S : standard rate
O : offset rate

C : savings capital
N : net savings rate

C/M == (O-S)/(O-N)

For Barclays using the reward range, 
offsets are only competitive at the higher LTV
for a 60% LTV these are the 2y choices.

Offset : 2.75% 2y tracker base + 2.00%  £499 fee

regular : 1.75% 2y tracker base+ 0.99% £0 fee 
 
savings easy to find 0.5%

C/M=1.25/2.25==55.5% offset(adjust for fees)

use your own numbers

There is a long running thread on offsets

https://forums.moneysavingexpert.com/discussion/471/offset-mortgages-the-numbers

Offsets often don't save money  unless you can find cheap money to offset(stooze) or the ratio above that needed to break even.

Offsets are really just reduce borrowing. 

To do your calculation you need to go back to the basic of the breakeven calculation.
interest on the standard rate less the interest earned on the savings must match the reduced mortgage on the offset rat
real savings  = (M*S) - (C*N) - (M-C)*O
(note until you hit the break even this is negative)

Many calculators don't take account of the potential better rate and savings rates


The glory days of low margins, low fees and free money from CC are way behind us.
the flexibility comes at a cost and there are other ways to manage that