Offset mortgages

jen_fpb

We are currently looking at an offset mortgage. We will end our current "deal" early and move to an offset as financially it works out better. 

We are offsetting as we are able to 100% offset. We have £60,000 mortgage and have £60,000 to offset so we will have an 0% interest rate.

We have seen one offset that has unlimited overpayment but still has an ERC of 
5% reducing to 2% until 30/06/29. 

There is a chance through inheritance possibly coming that we could overpay a HUGE chunk of the mortgage in say 2 to 3 years time (5 year deal). What would happen if we reduced this to say £5,000 and we still have 2 years left. We wouldn't want an ERC would we just pay £5,000 divided by the remaining term? And end up with small monthly payments?

It does have an exit fee, what's this?

silvercar

If or when the inheritance comes you could invest the money until the ERC ends. That way you won’t have any ERC to pay.

if you wanted to pay £55,000 of, leaving a balance of £5,000, you could have ERC charged on the £55,000. That would leave you with a £5,000 mortgage, I’m not sure lenders would accept you retaining such a small mortgage.

jen_fpb

@silvercar thanks, I understand ERC but the mortgages allow unlimited overpayments.

I'm struggling to understand how the ERC works with unlimited overpayments 

silvercar

jen_fpb said:

@silvercar thanks, I understand ERC but the mortgages allow unlimited overpayments.

I'm struggling to understand how the ERC works with unlimited overpayments 

Different mortgage providers do things in different ways, but you could have a linked savings account that you have full, so the net effect is zero interest charged or you could have one account and interest only charged on the balance, so a zero balance attracts no interest. Provided you don’t reduce the total max borrowing allowed you won’t have an ERC. Alternatively it could be that the lender is using the same wording on all their products, even ones with no ERC. You’d have to ask them or name the lender.

my personal experience is with an interest only offset, so being fully offset means no monthly payment.