Offset Mortgage - am I missing something obvious?

Ajdp11
Ajdp11 Posts: 26 Forumite
First Anniversary Combo Breaker
edited 29 April 2023 at 1:08PM in Mortgage-free wannabe
Hi MSE’s

Like many I am approaching the end of a fixed rate at nice low <1.5% rates. So I have started looking a new mortgages and my options. 

I’ve come across Offset mortgages (I see Barclays do them) and I feel like this could be a viable option, but I am worried I may be missing something? 


Assumptions for an example, 

(1) you have an outstanding mortgage of £150k with 20 years left, property work say £300k

(2) savings equal to the mortgage balance of £150k that you don’t need access to. 

(3) interest on a regular 2yr fixed at 4.5 vs 5.5 for the offset.

As I understand it

If you placed the cash savings with them, you would not pay any interest (only capital repayment) on the mortgage. So the actual interest rate on the mortgage isn’t important? 

of course you forego the interest that could be obtained from a savings account (say 3.75%), which if we assume a 40% tax payer, the actual realised interest would be even lower. 

In my mind that would give the opportunity to avoid paying the current higher interest rates for 2 years, and you are better off versus holding it in an interest paying savings account due to the lower rate and tax on the interest.

And you would only take the cash out the offset account if you believe the returns available on savings / investments after tax would be greater than the 5.5% mortgage rate (e.g maybe an equity market crash)

Have I understood these correctly or am I way off the mark and missing something very obvious?

Many thanks in advance for any feedback / thoughts 
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