Offset mortgage with early repayment charges

cheshirelabrador

There seem to be off mortgages with early repayment charges on the market. I'm trying to get my head around these.

Say, hypothetically, if you had £20,000 left to pay on a mortgage and you won an amount of money on the lottery/premium bonds etc you would have enough to pay off the remaining £20,000. If you then paid the mortgage off immediately you'd have to pay the early repayment charge. But if you were to increase the balance of the linked savings/current account to £20,000 then you would still be required to pay the agreed amount every month but that make the balance for incurring interest £0. Is that correct?

Might be an unlikely scenario but I'm just trying to get my head around exactly how offset mortgages work.

housebuyer143

cheshirelabrador said:

There seem to be off mortgages with early repayment charges on the market. I'm trying to get my head around these.

Say, hypothetically, if you had £20,000 left to pay on a mortgage and you won an amount of money on the lottery/premium bonds etc you would have enough to pay off the remaining £20,000. If you then paid the mortgage off immediately you'd have to pay the early repayment charge. But if you were to increase the balance of the linked savings/current account to £20,000 then you would still be required to pay the agreed amount every month but that make the balance for incurring interest £0. Is that correct?

Might be an unlikely scenario but I'm just trying to get my head around exactly how offset mortgages work.

Yes, that's how offset works. You would pay no interest if you offset the full amount. 
You would pay the ERC for ending the deal in the fixed period.

dimbo61

Most offset mortgage deals allow unlimited overpayments.
So if you wanted to you could pay say £19500 off the mortgage and just keep a balance of £500.
Wait till the fixed rate ends and then clear the mortgage.
We have now had 3 offset mortgages with YBS, Woolwich and Barclays and love the flexability they offer.
Rates are not as good as most normal fixed/tracker mortgages but it works well for some people.
We have a large mortgage and large offset balance so we can dip into the cash reserve if necessary at mortgage rates of interest which we repay quickly