Offset Mortgage

tinyfeetbiggob

looking at our first remortgage and wondering if we should be looking at an offset as we have enough in savings to offset around 35% of the outstanding balance.  Our mortgage adviser doesn't seem too keen but just wondering if anyone here has an offset and if it has worked well? 

Flugelhorn

everyone's circumstances are different and I haven't had a mortgage since 2010 so not sure what the current advice / market is like. We had an offset mortgages and found them really good - I had a fair bit of self employed sessional income and used to put it straight into the offsetting account where it sat until the tax man wanted a chunk of it, but it was working to reduce the balance during that time.
We aren't spendy so were never tempted by the reserve 

housebuyer143

I have an offset mortgage and it works for us, but we are offsetting 85% with the goal to offset 100% in the next few years. I chose not to do it when we had less as it wasn't really worth it.
The rate will be about 0.3% higher than the same non offset rate so you are paying for the privilege of having it. 
Whether it works for you really depends on what rate you have your savings in at the moment, whether you pay higher rate of tax or not and how much tax free savings limit you have. 

I am paying £30 a month extra to have an offset mortgage and for me that's worth it because the rates on my easy access savers is declining and I can no longer get higher in savings accounts, I don't have to rate chase, worry about paying tax on it etc. I also like that it's flexible. I choose not to pay off my mortgage because I like having the money available, and offset gives me this. 

There are only a handful of lenders who do offset, so I imagine that's why your broker isn't keen. I know Barclays are one but they only do a tracker and YBS is another, but they only do a fix and your broker can't apply to them as it's direct customers only. 

Flugelhorn

agree @housebuyer143 we felt we were earning tax free interest at a much higher rate than was available at the time elsewhere. also agree, we were offset at a high %  and not sure whether it works so well if the amount is lower.

Hoenir

Offset's do serve a purpose. You haven't given any indication why you want this particular product though. Your mortgage advisor knows more than we do in offering their opinion. 

tinyfeetbiggob

thanks all, We're aiming to keep the savings for the long term so like the idea of being able to use them to offset our mortgage balance and potentially reduce monthly payments with the ability to access them in an emergency if needed.  The other option we are looking at is paying off a smaller chunk outright. 

Hoenir

A downside of an offset is that you'll pay a higher rate of interest to cover the account running costs. If you have more savings than you actually need. Borrowing less and replenishing your savings might well be the better option. 

housebuyer143

tinyfeetbiggob said:

thanks all, We're aiming to keep the savings for the long term so like the idea of being able to use them to offset our mortgage balance and potentially reduce monthly payments with the ability to access them in an emergency if needed.  The other option we are looking at is paying off a smaller chunk outright. 

But, how does the offset compare to what you get in savings?
It isn't always the cheapest option and there are other ways to have instant access savings. I guess it depends how much money 35% is. If it's £100k then that's different to having £35k. 

silvercar

Hoenir said:

A downside of an offset is that you'll pay a higher rate of interest to cover the account running costs. If you have more savings than you actually need. Borrowing less and replenishing your savings might well be the better option. 

The upside is you won’t pay tax on your savings, so compare the interest rate charged on the mortgage with the net interest rate on your savings. As only the first £1k/ £500/ £0 depending on income tax rate is tax free. 

We’ve have an offset for 24 years and are on a base rate tracker of boe + 0.49%. It’s worked for us.