Pay off mortgage or leave in offset?

izawa

Hello,

We are in a slight dilemma. We have an offset mortgage and at the moment it is totally offset against outstanding mortgage balance. We have been very fortunate to be in this position (thanks to my family). We haven't paid any mortgage interest in the past year due to this. The doubt we have is , should we:

1) Pay off the mortgage and make admin easier
2) Leave the savings in there. I have heard it is better to have a mortgage so banks can step in whenever there is an issue with home insurance issues.

We have £30k on top of the mortgage outstanding/savings balance so can manage.

Facts: House value: £260k/ Outstanding mortgage = £200k / Savings in offset account = £200k [Hence paying no interest as fully offset)

What do you suggest we should do?

jimjames

I can't see a reason for #2 unless the house is destroyed or very badly damaged and even then it would only be an issue if the insurance weren't dealing with it. Probably no benefit keeping mortgage unless it helps with credit rating to maintain it. But it's not making or losing you any money if the amount is totally offset.

tetrarch

I was in this position and would recommend keeping the house fully offset. 

I kept our house fully offset on the offchance that we might need the money to temporarily help elderly parents of offspring to buy housing should they want (or be forced by ill-health) to move. It was essentially a free transaction. Furthermore, as it was Barclays we were able to offset with a cash ISA, with the idea of keeping the wrapper after retirement (and taking the 25% TFLS)

This nearly worked out as planned, but actually it was us that moved and we needed to be a cash buyer in order to get a viewing for our dream house - without the offset we simply would not have got the house.

You never know what will happen in the future and I will always take as many free options as I am offered

Regards

Tet

getmore4less

There are a few factors to consider.

The main one are there any costs and is the rate decent enough that you would borrow at that rate if needed.

The flexibility with an easy line of credit at reasonable rate you don't have to ask for can be very useful.

An example(on top of those mentioned) might be filling up an ISA then reloading the offset from income.

The thing to be thinking about now is what to do with surplus income and longer term investing retirement plans 

izawa

Thank you all.

At what point do you think it would make sense to pay off completely? Say if we manage to hit a 6 figure savings (eg 100k) on top of offset, does it make sense to pay off mortgage?

getmore4less

If you can set the DD to come out of the savings account just let it run down over full term review if you need the cash.

dimbo61

You say " thanks to family " so is it a YBS Offset mortgage ?
Have family put money into Offset accounts to help with your mortgage balance ?
I Love Offset mortgages.
It will have an end date and unless on an Interest Only Offset you will be paying down the debt each month.
Have you got a good company pension ?
If you paid extra into your pension will your employer match it ?
What about ISA,s and LISA,s ?
Drip feed the mortgage payment every month into either Pensions or ISA,s 

Sistergold

izawa said:

Thank you all.

At what point do you think it would make sense to pay off completely? Say if we manage to hit a 6 figure savings (eg 100k) on top of offset, does it make sense to pay off mortgage?

Once you are neutral in your offset you need to think of where else to put your savings surely? 

housebuyer143

I would keep it offset. Much more useful to have money in the bank if you need it than trying to try get it out of the property. 

Grumpy_chap

I have an offset mortgage in the same position as the OP, so fully offset other than the practical requirements of a minimum balance as required by the terms of the scheme and to allow an on-going monthly mortgage payment to be made - the rules do not actually allow the offset to go to zero debt or into a nett positive balance.

I keep the offset as this is a large amount of immediately available finance if I ever need it and no challenges of eligibility etc from the lender as that was all done years ago. 

Just as well really as a few years back (shortly after the banking crash) I did try to change the mortgage with the lender to a more competitive interest rate and met a point-blank refusal as at that time my salary did not meet the banks minimum earning level for any mortgage product.  I was firmly told that I would not be eligible to take my current mortgage product if those rules then were in place when I originally took the mortgage - all despite the fact that my salary then was much higher than when I originally took the mortgage.

I also now have a situation where my salary is NMW so the ability to borrow from anywhere else is really quite restricted.  This magnitude of reduction in earnings was not something I really considered when I first reached the point of offset balance - I only considered the flexibility of drawdown if needed.  Having the option to draw down the funds may be helpful, though obviously it requires that I am disciplined as NMW and a whole mortgage drawn back down could result in very negative outcomes.

So, in summary, keep the facility open for the flexibility unless you think that there is any possibility that the level of easily accessible funding will lead to debt crisis.

izawa

dimbo61 said:

You say " thanks to family " so is it a YBS Offset mortgage ?
Have family put money into Offset accounts to help with your mortgage balance ?
I Love Offset mortgages.
It will have an end date and unless on an Interest Only Offset you will be paying down the debt each month.
Have you got a good company pension ?
If you paid extra into your pension will your employer match it ?
What about ISA,s and LISA,s ?
Drip feed the mortgage payment every month into either Pensions or ISA,s 

Hi,

No, no family funds. It's just that with help of immediate family, we have been able to save and reach this target sooner than expected.