Offset mortgage or overpay?

Intel1982

Hi - my mortgage fix is due up in March 2024, just looking for some information.

We have around £78k left to pay (property worth about £140k). We want to pay it off as soon as possible and like the idea of unlimited overpayments.

Would an offset mortgage be good for this? Or just a normal mortgage with overpayments?

Thanks!

Hoenir

You could consider shortening the mortgage term. Are you in a position to overpay currently. 

Intel1982

Hi, yes we are in a position to overpay. I hadn’t thought of reducing the term that’s a great idea thank you! Do you know what’s the shortest term we could reduce it to?

ElwoodBlues

First Direct allow unlimited overpayments. Natwest allow 20% overpayment without ERC. Barclays apparently allow unlimited overpayments provided you do it in small enough chunks:

https://forums.moneysavingexpert.com/discussion/comment/80362732

Only advantage of an offset mortgage is that you get the flexibility of being able to dip back into the overpayments if needed. But if you're not likely to want that facility it's probably not worth the higher interest rate.

Newbie_John

First Direct I think offers unlimited overpayments, so that could suit your needs.

Hoenir

Intel1982 said:

Hi, yes we are in a position to overpay. I hadn’t thought of reducing the term that’s a great idea thank you! Do you know what’s the shortest term we could reduce it to?

As far as your existing lender will be concerned. The monthly outgoing will need to be comfortably affordable. Don't over stretch yourselves.  It instills a good financial discipline while still allowing overpayments to be made. Plug the numbers into a mortgage calculator. 

Intel1982

First direct sounds like a shout, thank you all for your advice. Just having a look at the rates now 

Sistergold

I think leaving the term as is and doing overpayments is better from the point of view of flexibility. It allows you to make the smaller payments if your financial goals or situation should change. When you deliberately make overpayments you are essentially shortening your term because once the number is right although on paper you have 20 years left you can then just clear off the balance. So I would personally get a mortgage with same term but with no limits to overpayments. 

iainscomputer

Hi, the problem with shortening the term is if your circumstances change it could be harder to make the payment, I have had a lifetime base rate tracker where I could overpay by as much as I wanted.
I have altered my direct debit to overpay by around £100 pm, these smaller payments reduce the term of the mortgage, when interest rates went up recently I decided to pay a £10k lump sum of my mortgage to reduce the interest I was paying, this lump sum had the effect of reducing the monthly payment that was required, so my overpayment has now increased.
But I have the flexibility of stopping my overpayment if my circumstances change.

Intel1982

Thanks guys, I’m planning on going with First Direct for a 25 term and pay off as much as possible.

400ixl

If you don't need access to the overpayments then whether you go offset or repayment doesn't make a lot of difference. Get the lowest rate you can for the shortest term.

Be wary that if you don't reduce the term at the start, some reduce the payments and keep the term if you oberpay. If it then has a % cap on overpayments this means that amount you can overpay continues to shrink.