Offset and savings question

nathanpurton

Hello all you lovely frugal people. 

For the first time in my life I have have the option of using some savings to offset against my mortgage and I wanted to run something past you all to see if I have misunderstood or over simplified things (very possibly).

A quick overview of my position.
5 Years ago I took some extra borrowing on my mortgage (£30000) which i had an interest rate of 1.91% for the life of the product which was 5 years with the total term of repayment being 15 years. I find myself with a balance as the product finishes this month of £20979. I have a cash ISA currently with £17,000 and save £330 per month into my ISA.
My Cash ISA is currently a car fund so I don't want to pay off my mortgage with it as I may need to access some of the money at some point over the 5 years but hopefully not. 
My wife could possibly put in £3,979 to basically meet the outstanding amount on the mortgage. Again with the possible caveat that she might need to draw some money for a building project which we want to complete in the next 4 years.

So my question is am I better off putting the mortgage balance into an offset account and paying no interest for the life of the product and still saving my £330 per month which I think equates to £19,880 over the 5 years (not including interest earned in the ISA - currently 3.85%). This would mean after the 5 year mortgage product ends I would still have the £20979 with a mortgage balance of approximately £8000 which I could clear from my savings (£19880) and that'd give me a savings total of approx. £31000. Or is there a way I can reduce the amount held in the offset if each month my borrowing is reduced by £218 (my monthly mortgage payment) can I can transfer that £218 from offset into savings along with the £330 so I'm earning more in interest whilst still not paying interest on my mortgage borrowing? 

Any advice or criticism of my simplistic viewing on this would be really appreciated.   

El_Torro

I'm not sure you're looking at this simply, if anything I think you are overcomplicating it. 

What interest rate are you being offered on a new mortgage? If you can get a better interest rate on your Cash ISA then you are better off having the money there and not overpaying your mortgage. 

One thing to consider is that if you get a 5 year mortgage now then it's unlikely that savings interest rates will be higher over the next 5 years. You may be better off sticking what you can in a mortgage now, before you are affected by Early Repayment Charges.

You'll probably be better off with an offset mortgage (assuming the interest rate is competitive) than putting the extra money in a Cash ISA. 

nathanpurton

Thanks for the reply. Yes the mortgage interest rate I’m being offered is 4.56% so more than the interest on savings. 

Do you know if I have an offset mortgage can I take money out of the offset account each month to just hold the current balance and put the extra - which would be that months payment  - into the ISA saving account? 

El_Torro

I've never had an offset mortgage but I believe this can be done, yes. Depending on which lender you go with there may be a minimal withdrawal amount, or even a withdrawal fee. Best to check the terms and conditions of the lenders you are looking at.