Offset mortgage

lyndylou123

Hi. I have an offset mortgage for 39000 with 4 years 11 months left. . I have an inheritance that could pay it off and leave us with some savings.  Am I better doing this or let it run it course. Our plan was to pay the money we pay for our mortgage back into the savings if we do pay it off. 

Our mortgage is with Barclays. Offset tracker. BEBR +0.75%

TIA 

silvercar

In a similar circumstance, I am fully offsetting the mortgage, so no interest to pay. Will make a decision at the end of the term.

peldpeld

bumping this thread as also have a similar Q.....

later this year my normal mortgage deal expires - like many ill go from 2.7ish% to 6+%
However, we have a lot of savings. In fact, by the end of the year, may even have the value of the mortgage.
As we still want to keep the savings (may be needed for kids school in a couple of years) rather than pay off the mortgage, offset definitely seems the way to go. 

However I have to ask, could i get an offset mortgage with 100% at the outset? What do the banks get from this deal, maybe apart from a small fee and the chance ill reduce the savings down in the future??? 

It seems a no brainer - fully offset - only pay capital off each month, then i can withdraw the same £ from the savings each month and invest elsewhere.

What arent I seeing?

Flugelhorn

peldpeld said:

bumping this thread as also have a similar Q.....

later this year my normal mortgage deal expires - like many ill go from 2.7ish% to 6+%
However, we have a lot of savings. In fact, by the end of the year, may even have the value of the mortgage.
As we still want to keep the savings (may be needed for kids school in a couple of years) rather than pay off the mortgage, offset definitely seems the way to go. 

However I have to ask, could i get an offset mortgage with 100% at the outset? What do the banks get from this deal, maybe apart from a small fee and the chance ill reduce the savings down in the future??? 

It seems a no brainer - fully offset - only pay capital off each month, then i can withdraw the same £ from the savings each month and invest elsewhere.

What arent I seeing?

we had an offset, it was great  - used to do a fair bit of self employed work on top of the day job and we used to keep all the money in the current account offsetting  until the taxman wanted his share. It was fully offset for the last 5-6 years before we moved.

I asked FA or bank (can't remember) what was in it for the bank? The answer was that they expected you to be tempted by the extra borrowing facility and not to be offsetting huge amounts of money. I think we were a let-down to the bank but it suited us

plunt

peldpeld said:

bumping this thread as also have a similar Q.....

later this year my normal mortgage deal expires - like many ill go from 2.7ish% to 6+%
However, we have a lot of savings. In fact, by the end of the year, may even have the value of the mortgage.
As we still want to keep the savings (may be needed for kids school in a couple of years) rather than pay off the mortgage, offset definitely seems the way to go. 

However I have to ask, could i get an offset mortgage with 100% at the outset? What do the banks get from this deal, maybe apart from a small fee and the chance ill reduce the savings down in the future??? 

It seems a no brainer - fully offset - only pay capital off each month, then i can withdraw the same £ from the savings each month and invest elsewhere.

What arent I seeing?

There are no issues with this and well worth doing just ensure you are getting a higher return after tax on the savings interest (or stick in an isa) and as you flagged ensure you have the amount ready for the monthly capital repayments. Also ensure when selecting the offset option you select reduce monthly payment rather than reduce term. Also you will usually not be able to offset from day 1, it usually takes a few weeks or after 1st payment so you will incur a small bit of interest but will be marginal given savings rates. I'd also not tell them you plan to offset straight away to avoid them not being bothered to take you on.

I've historically borrowed as much as possible even if it wasn't needed so I could stick it in the offset. This gives you a risk free 'bet' if rates go up and you can arbitrage on the savings interest rate. Remember that fixed rates in an isa can actually be accessed early but with a penalty. It also gives you flexibility in the future to port your mortgage to a more expensive place if you decide to move.

One item worth flagging is offsets usually charge a premium to market rates of circa 0.5% (depends on provider and ltv) , so that's where banks often make their premium. This won't matter if you are 100% offset but will if you aren't!

Personally if you are diligent on your finances and aren't drawn to using up your offset then keep it as long as you can provided you have no additional arrangement fees etc.