Offset Mortgages

Routy

I wanted to make people aware that when they have an offset mortgage the provider still takes money from you. I have a Barclays off set mortgage that is fully set off (for over 6 months). Due to the way they collect interest they still takes a payment from you even though no interest is outstanding. They then use this amount to reduce the capital outstanding as no interest is due. The issue with this is they are taking a payment even though no interest is due and they are making the decision to reduce the capital sum outstanding.

Most people (like me) would assume that if you account is fully offset the bank would be taking no money from you. That is not how it works and in my view the bank are misleading people.

Has anyone else had the same experience- I think they should be required to be far more specific and just should not be able to do this

Exodi

Admittedly I've never had an offset mortgage, but what you describe happening is exactly what I assumed should happen? The whole purpose of offsetting is to reduce interest… obviously you still have to pay the principal back? Otherwise the mortgage could last forever?

Routy

Most people (like me) would assume that if you account is fully offset the bank would be taking no money from you.

Where do you get the datapoint that 'most people' assume that no payment is due if you fully offset the balance? To be honest, I've never seen this complaint before on this forum.

born_again

https://forums.moneysavingexpert.com/discussion/comment/81942928#Comment_81942928

Barclays say

https://www.barclays.co.uk/mortgages/offset-mortgage/

How do offset mortgages work?

Offset mortgages let you link your current and savings accounts to your mortgage. We offset the total balances of your linked accounts against the amount you owe on the mortgage each month, and then work out your mortgage interest on the lowered balance. You won’t earn interest on the current and savings accounts while they’re linked to the mortgage.

Which is not clear that they still take payment. Although it could be that the actual T/C state that they do. So if the interest from savings fully covers the interest on the mortgage, then there should be no funds taken?

la531983

https://forums.moneysavingexpert.com/discussion/comment/81942955#Comment_81942955

Not all of a mortgage payment is "interest" unless it is an interest only mortgage…..

born_again

https://forums.moneysavingexpert.com/discussion/comment/81942964#Comment_81942964

That would be something that OP would need to confirm.

In reality they would be better speaking to Barclays Mortgage team on this. As it would seem odd that they were never advised about it when going through the process. Although given the length of the calls & the length compliance given or to read, many people do switch off & miss important info 🤷‍♀️Normal human behaviour.

Exodi

born_again

Offset mortgages let you link your current and savings accounts to your mortgage. We offset the total balances of your linked accounts against the amount you owe on the mortgage each month, and then work out your mortgage interest on the lowered balance.

Even the part you've linked doesn't lead me to conclude no payment whatsoever is due… the latter part would just suggest that in the case that the mortgage is fully offset that there would be no interest.

That's not even considering the inevitable literature OP received when taking out the product.

If one believes that a fully offset mortgage means no payment is charged, how do they think the principal will be paid off? Ad hoc payments when the borrower feels like it?

What the OP has said implies it's not an IO mortgage.

Ayr_Rage

As above, even if fully offset, you still have to pay off the capital if it is a repayment mortgage.

vacheron

I've had a Barclays offset mortgage since 2010 and yes, this is exactly how it works.

When you are fully offset, you indeed pay zero interest. But any repayment mortgage (which the Barclays offset is) is part interest and part repayment.

As a repayment mortgage gets closer to its end, the interest element decreases and the capital repayment element increases, and is calculated so that the monthly payment remains exactly the same every month.

Barclays makes the assumption (and you will have agreed to this in the paperwork) that the mortgage will pay off all the capital borrowed by the end of the term, so they apply the exact same capital repayment schedule as a standard repayment mortgage which ensures that the capital is fully paid off by the end of the mortgage term you requested.

Therefore, yes, they will take the capital repayment element each month, but not the interest element, and the capital repayment element will get larger each month.

There is a workaround for this though, which is that you will have a mortgage reserve (basically a huge overdraft which increases pretty much in line with the equity in your house), so once you are fully offset, do like I do and "pay" your mortgage from m your offset reserve account.

Just remember that you will need to repay both your mortgage and your reserve at the end of the term!

Woodstok2000

https://forums.moneysavingexpert.com/discussion/comment/81943076#Comment_81943076

Barclays do also offer offset mortgages on an interest only basis, in which case you may not expect any payment on the capital with a full offset.

ACG

This is the key bit, is your mortgage repayment or interest only?

The problem here is that you have assumed. That does not make Barclays wrong.

They do have to be specific. What does the mortgage offer and application state?

silvercar

You need to read what you signed up to. My Coventry offset allowed me to choose between the offset savings reducing the monthly payments or going towards repaying the capital.