Offset, Overpayment or Saving Account?

Oldbutnotgrumpy

Hello, hope someone can shed a bit of light please?

I have approx. £32k left on a offset mortgage 0.75% over base (currently 5.75%) the property is valued at about £280k and I have 6 years left. We have been (joint) with YBS for the whole term of the mortgage but never been in the position to use the offset bit.

We now have £15k lump some and £400 extra every month as we have pulled a pension early.

We would like to reduce the term of the mortgage but still have the bulk of the money available as a “just in case”.

The options that is driving me slightly mad is

1.      Do I put the £15k into the offset account and every month top it up with the £400.

2.      Put the £15k into the account and overpay the £400 (current payment is £577)

3.      £15k in and split over payment and saving to the offset 50/50

4.      Put the £15k into a easy access higher interest account and then over pay by £400

 

Any advice would be appreciated

 

 

Hoenir

How much are you allowed to overpay your mortgage by per annum? 

Are their any exit penalties from the current mortgage product? 

If you aren't using the offset facility. Which in effect you are payng for. Have you considered switching to another mortgage product ?

Oldbutnotgrumpy

There are no restrictions or penalties

Oldbutnotgrumpy

I don’t really want to switch, we only went with this mortgage as it was the best at the time, I could go with another provider on a shorter term fixed to a lower rate, this would use up the extra £400 payments - but in an uncertain world, I don't want to be stuck with a massive fixed repayment. Staying where I am gives me a safety net where I could revert to the normal payment (redundancy’s for example) .

My main goal is to reduce the term of the mortgage, even to the expense of missing out on a few hundred in interest (saving option), but obviously not !000’s 😁

saajan_12

Oldbutnotgrumpy said:

Hello, hope someone can shed a bit of light please?

I have approx. £32k left on a offset mortgage 0.75% over base (currently 5.75%) the property is valued at about £280k and I have 6 years left. We have been (joint) with YBS for the whole term of the mortgage but never been in the position to use the offset bit.

We now have £15k lump some and £400 extra every month as we have pulled a pension early.

We would like to reduce the term of the mortgage but still have the bulk of the money available as a “just in case”.

The options that is driving me slightly mad is

1.      Do I put the £15k into the offset account and every month top it up with the £400.

2.      Put the £15k into the account and overpay the £400 (current payment is £577)

3.      £15k in and split over payment and saving to the offset 50/50

4.      Put the £15k into a easy access higher interest account and then over pay by £400

 

Any advice would be appreciated

 

 

The first three all seem like they same result - you save the 5.75% interest on the portion that you put into the offset account / overpay, except that overpaying gives you slightly less flexibility. 

For (4), what's the rate on the other savings accounts you can access? Most are at or under the 5.75% and depending on your tax band, you may have to pay income tax on the interest which lowers it further. 

I would just do (1) as its the most beneficial in interest and the most flexible if the 'in case" happens. 

Oldbutnotgrumpy

saajan_12 said:

Oldbutnotgrumpy said:

Hello, hope someone can shed a bit of light please?

I have approx. £32k left on a offset mortgage 0.75% over base (currently 5.75%) the property is valued at about £280k and I have 6 years left. We have been (joint) with YBS for the whole term of the mortgage but never been in the position to use the offset bit.

We now have £15k lump some and £400 extra every month as we have pulled a pension early.

We would like to reduce the term of the mortgage but still have the bulk of the money available as a “just in case”.

The options that is driving me slightly mad is

1.      Do I put the £15k into the offset account and every month top it up with the £400.

2.      Put the £15k into the account and overpay the £400 (current payment is £577)

3.      £15k in and split over payment and saving to the offset 50/50

4.      Put the £15k into a easy access higher interest account and then over pay by £400

 

Any advice would be appreciated

 

 

The first three all seem like they same result - you save the 5.75% interest on the portion that you put into the offset account / overpay, except that overpaying gives you slightly less flexibility. 

For (4), what's the rate on the other savings accounts you can access? Most are at or under the 5.75% and depending on your tax band, you may have to pay income tax on the interest which lowers it further. 

I would just do (1) as its the most beneficial in interest and the most flexible if the 'in case" happens. 

We are basic tax bracket.

I did see a Leeds Building Society offer 6.2% but I have not looked at it fully (might just be an introductory offer?)

My gut feeling was number 1 or 3, but really appreciate the advice, I do think option 1 is for me as things stand.

Once again many thanks

silvercar

For me, and I have an offset with bigger numbers, everything goes in the offset. That way you have access to the money when you need it and it reduces your monthly repayments. That could mean that you have more money to put in the offset as your monthly payments are further reduced.

Oldbutnotgrumpy

silvercar said:

For me, and I have an offset with bigger numbers, everything goes in the offset. That way you have access to the money when you need it and it reduces your monthly repayments. That could mean that you have more money to put in the offset as your monthly payments are further reduced.

That sounds perfect, our intention was to use the offset in the correct manner, a friend cleared his mortgage early using his correctly, life got in the way for us unfortunately.

I started to over think and tying myself up in knots

As you have mentioned the money is still available if things go a little sideways.