Mortgage - Best way forward

MDK130

Hi All, 

I am looking for some advice, I know the there are multiple different answers.

Our current mortgage term is due to end in Feb 2027, a mortgage of approx. £270K at that time. 
I'm in the very fortunate position of having a reasonable savings post £100K. 

I would like to pay off my mortgage as soon as possible, so I have been looking into different options for my mortgage renewal. 

I came across offset mortgages which look like they could help me achieve this, but still allowing access to the savings if something bad was to happen. 
I do have a separate savings account for emergencies. 

I thought of moving to an offset mortgage when the time comes. Putting the £100K in there, my current monthly mortgage is approx. £1400. 
Hopefully the offset mortgage monthly would be around the same. 

To add to this, I would look to overpay on the offset mortgage per month between £500-700. (Is it better to add this to the offset or pay directly to the mortgage amount. 

Main questions are: 

1. Anyone that has an offset mortgage, would this be a sensible idea? 
2. Is there a quicker way / solution to pay off a mortgage rather than the above? (Using the figures above)
3. Have I missed anything obvs in the above? I know that we have only just started 2026, but its best to be prepared...

Thanks all


  

Newbie_John

It's all down to rates.. if you keep £100k in savings account that's % is greater than your mortgage - that's better than offset mortgage. Obviously tax on interests needs to be taken into consideration.

Also if you don't need that £100k, let the mortgage go to variable rate, pay off £100k, then lock into a fixed term. 

But as said earlier, compare all the rates and see what's best.

Herzlos

What's your plan to pay off the mortgage if you go offset?

Basically an offset mortgage just means that you don't pay (or gain) and interest on the savings that are associated with it. So a £270k mortgage with £100k savings means you're only paying interest on £170k.

What's your early repayment charge on the current mortgage? What are the rates on your mortgage and savings?

Another thing to remember is that if you pay it off the mortgage balance, and need extra emergency money then you can always re-mortgage again.  

If I had a separate savings, then I'd be looking to pay down the mortgage, either taking the hit on the ERC or by making overpayments under the threshold. 

Albermarle

A common question on the finance boards is 'should I pay off my mortgage, or save /invest the money'

One strategy is to add more to your pension, and then later use the tax free lump sum to pay off the remaining mortgage, taking advantage of the tax relief on pension contributions. Depends on your age to some extent. 

The decision can be also an emotional vs rational one. A lot of people see paying off a mortgage quickly as a top priority, even if the hard figures may indicate that it may not necessarily be the best course of action.

As already said, what rates your are talking about is a big factor as well. 

Bluebell1000

We had an offset mortgage a while ago. I found it really useful, we put as much as we could into the offset to try and get it as offset as possible, while only making interest only payment off the balance (probably not allowed now - may have to be on a repayment basis). The flexibility was very useful.

Newbie_John

Bluebell1000 said:

We had an offset mortgage a while ago. I found it really useful, we put as much as we could into the offset to try and get it as offset as possible, while only making interest only payment off the balance (probably not allowed now - may have to be on a repayment basis). The flexibility was very useful.

Sure but you can replicate an offset mortgage by simply having savings.
Had a quick look at rates at Barclays and offset mortgage comes with 5% interest but normal fixed mortgages at 3.7%. Best cash ISA on MSE 4.15% for 2 years.

So with offset you pay extra 1.3% interest on remaining balance. With fixed at 3.7% and ISA you actually earn 0.45% interests.

Other bits like tax and limits need to be considered but in general offset may not be as good really.

poseidon1

Newbie_John said:

Bluebell1000 said:

We had an offset mortgage a while ago. I found it really useful, we put as much as we could into the offset to try and get it as offset as possible, while only making interest only payment off the balance (probably not allowed now - may have to be on a repayment basis). The flexibility was very useful.

Sure but you can replicate an offset mortgage by simply having savings.
Had a quick look at rates at Barclays and offset mortgage comes with 5% interest but normal fixed mortgages at 3.7%. Best cash ISA on MSE 4.15% for 2 years.

So with offset you pay extra 1.3% interest on remaining balance. With fixed at 3.7% and ISA you actually earn 0.45% interests.

Other bits like tax and limits need to be considered but in general offset may not be as good really.

This form of 'DIY' offset analysis only works if the OP has already accumulated £100k in a pre- exsisting ISA account, which does not appear to be the case.

Assuming OP is married and neither of them have used their £20k allowances best they can do right now is a total £40k into fixed rate ISAs, with a further £40k subscribed after 5 April at whatever fixed rate terms then available.

However, I generally agree with this ISA approach, since the monthly interest from the ISAs can be deployed towards monthly mortgage overpayments whilst keeping the original inheritance intact in a very valuable tax free environment.

In years to come ( as the borrowings decline), OP should be looking to transfer cash ISA to stocks and shares variant to give that capital an opportunity to grow and increase their net worth as well as the income that can be derived therefrom.