Offset mortgage with more savings than mortgage…..

SambaJax

Bear bear with me - this is a bit tricky to explain……
My fixed rate mortgage is due to end July this year. Let’s say I owe £50k on the mortgage, with house worth £200k. I have over £50k savings due to ill health retirement, and don’t expect to live more than a few years (I have a terminal condition….)
Im trying to maximise my monthly income, as paying the mortgage off isn’t a concern for me. There will be sufficient equity for my brother to clear all debts when I die, so I wondered what happens if I remortgage to an offset mortgage, with more savings in the account than the mortgage amount? Would I pay a significantly reduced monthly payment as I’m offsetting most/all of the interest on the loan? Or am I completely misunderstanding this type of product?
Would love your feedback/ideas as to how to minimise monthly spend, while not actually using any of my lump sum to pay off capital. 

Thanks!
Jackie

housebuyer143

SambaJax said:

Bear bear with me - this is a bit tricky to explain……
My fixed rate mortgage is due to end July this year. Let’s say I owe £50k on the mortgage, with house worth £200k. I have over £50k savings due to ill health retirement, and don’t expect to live more than a few years (I have a terminal condition….)
Im trying to maximise my monthly income, as paying the mortgage off isn’t a concern for me. There will be sufficient equity for my brother to clear all debts when I die, so I wondered what happens if I remortgage to an offset mortgage, with more savings in the account than the mortgage amount? Would I pay a significantly reduced monthly payment as I’m offsetting most/all of the interest on the loan? Or am I completely misunderstanding this type of product?
Would love your feedback/ideas as to how to minimise monthly spend, while not actually using any of my lump sum to pay off capital. 

Thanks!
Jackie

That's right. You offset the entire balance and you pay nothing for your mortgage. 
Are you on a fixed rate now? What rate do you pay and when does the deal end?
If you are on a lowish rate now then you have have the same affect as offsetting by just putting your money into an easy access savings account paying more interest than your mortgage costs. 

silvercar

If you offset the total amount, you won’t have anything to pay - assuming your mortgage is interest only. If it is repayment mortgage then there is the capital element that still needs paying. Try speaking to your lender as some may give you the option of keeping the payments the same to finish the mortgage earlier or to reduce the repayments to the capital element only. 

Sounds like you have a lot of savings, it may be worth paying off the mortgage if that gives you a better benefit entitlement either now or in the next few years.

sorry you find yourself in this situation.

housebuyer143

silvercar said:

If you offset the total amount, you won’t have anything to pay - assuming your mortgage is interest only. If it is repayment mortgage then there is the capital element that still needs paying. Try speaking to your lender as some may give you the option of keeping the payments the same to finish the mortgage earlier or to reduce the repayments to the capital element only. 

Sounds like you have a lot of savings, it may be worth paying off the mortgage if that gives you a better benefit entitlement either now or in the next few years.

sorry you find yourself in this situation.

Yes you will have to pay capital, but if you are offsetting the full balance you just withdraw the capital payment from the offset account as soon as it's credited. You don't want to have more in there than the mortgage amount.

silvercar

housebuyer143 said:

silvercar said:

If you offset the total amount, you won’t have anything to pay - assuming your mortgage is interest only. If it is repayment mortgage then there is the capital element that still needs paying. Try speaking to your lender as some may give you the option of keeping the payments the same to finish the mortgage earlier or to reduce the repayments to the capital element only. 

Sounds like you have a lot of savings, it may be worth paying off the mortgage if that gives you a better benefit entitlement either now or in the next few years.

sorry you find yourself in this situation.

Yes you will have to pay capital, but if you are offsetting the full balance you just withdraw the capital payment from the offset account as soon as it's credited. You don't want to have more in there than the mortgage amount.

But then there wouldn’t be any contribution to reducing the capital, which is what a repayment mortgage is meant to deliver. 

silvercar

Be worth asking your lender if you can go interest only in the circumstances, with the repayment vehicle being the sale of the property.

housebuyer143

silvercar said:

housebuyer143 said:

silvercar said:

If you offset the total amount, you won’t have anything to pay - assuming your mortgage is interest only. If it is repayment mortgage then there is the capital element that still needs paying. Try speaking to your lender as some may give you the option of keeping the payments the same to finish the mortgage earlier or to reduce the repayments to the capital element only. 

Sounds like you have a lot of savings, it may be worth paying off the mortgage if that gives you a better benefit entitlement either now or in the next few years.

sorry you find yourself in this situation.

Yes you will have to pay capital, but if you are offsetting the full balance you just withdraw the capital payment from the offset account as soon as it's credited. You don't want to have more in there than the mortgage amount.

But then there wouldn’t be any contribution to reducing the capital, which is what a repayment mortgage is meant to deliver. 

I'm not sure you quite understand the offset concept.
The capital that has paid to the lender reduces the amount owing so you ARE reducing the loan each month as you do a normal repayment mortgage.
When the account is fully offset, each payment you make reduces the capital owed and therefore the amount you need to hold in your offset account, which is why I say you just withdraw the amount you pay off the capital each month from the offset account so it matches the loan owed. If you didn't, the amount you hold on the offset account would increase and be more than the loan due.
You do not make interest on money in the offset account so you should never hold more than your loan in there. 

The OP doesn't need to go interest only, it makes no difference at all to this situation apart from they don't need to withdraw the capital paid each month from the account.

silvercar

housebuyer143 said:

silvercar said:

housebuyer143 said:

silvercar said:

If you offset the total amount, you won’t have anything to pay - assuming your mortgage is interest only. If it is repayment mortgage then there is the capital element that still needs paying. Try speaking to your lender as some may give you the option of keeping the payments the same to finish the mortgage earlier or to reduce the repayments to the capital element only. 

Sounds like you have a lot of savings, it may be worth paying off the mortgage if that gives you a better benefit entitlement either now or in the next few years.

sorry you find yourself in this situation.

Yes you will have to pay capital, but if you are offsetting the full balance you just withdraw the capital payment from the offset account as soon as it's credited. You don't want to have more in there than the mortgage amount.

But then there wouldn’t be any contribution to reducing the capital, which is what a repayment mortgage is meant to deliver. 

I'm not sure you quite understand the offset concept.
The capital that has paid to the lender reduces the amount owing so you ARE reducing the loan each month as you do a normal repayment mortgage.
When the account is fully offset, each payment you make reduces the capital owed and therefore the amount you need to hold in your offset account, which is why I say you just withdraw the amount you pay off the capital each month from the offset account so it matches the loan owed. If you didn't, the amount you hold on the offset account would increase and be more than the loan due.
You do not make interest on money in the offset account so you should never hold more than your loan in there. 

The OP doesn't need to go interest only, it makes no difference at all to this situation apart from they don't need to withdraw the capital paid each month from the account.

OK. My offset is interest only. I have the offset is fully funded so I don’t have any payments to make.

Grumpy_chap

My offset mortgage does not allow the credit balance on the linked accounts to exceed the remaining debt.
The OP should check similar clauses with any product that is being considered.
The product can still be used by having a credit balance a little less than the debt and leaving the linked accounts static.  
There may be a need for some transactions just to show the accounts as active, again depending on the rules of the lender.

SambaJax

Thank you all for your thoughts. I feel now that interest only is probably the best option for me, it means I get to keep (and spend) the cash I have in the bank, lowers my monthly repayment (so I don’t need to worry about rising cost of living as much), and still leaves sufficient equity in the home to clear all debts on my demise.

Now I “just” need to find a provider to lend to me on that basis. 

housebuyer143

SambaJax said:

Thank you all for your thoughts. I feel now that interest only is probably the best option for me, it means I get to keep (and spend) the cash I have in the bank, lowers my monthly repayment (so I don’t need to worry about rising cost of living as much), and still leaves sufficient equity in the home to clear all debts on my demise.

Now I “just” need to find a provider to lend to me on that basis. 

You will struggle.. Interest only is really only for those that don't need it. 

You either need a high salary, or a suitable repayment strategy, which can include downsizing but you need at least £200k equity in most cases. For the amount you owe, the saving is minimal and you are not likely to have a choice of many lenders with the best rates if limiting yourself to this option.