Advice Wanted - First Direct 5.15% 10 Year Fix

InMyDreams

I'm also looking at First Direct. I had definitely decided I was going to take out the HSBC 4.99% variable offer (with £2000 fee) and have an appointment with them tomorrow, but now I don't know!

I have no interest in offsetting with them. (I offset myself in better paying interest accounts.) But all the FD offers look good. I'm sorely tempted by the 5.5% variable until the end of the year as it has no fee, no valuation or legals to pay and no tie-in at all, then just wait and see what interest rates do this year and maybe fix later.

Decisions decisions!

dpesky

Hi all, offsetting has a lot more flexibility then just over paying such as linked accounts to benefit, credit balances on your current account saving you interest payments etc etc.

hangover

One thing I have only just discovered about First Direct's offset mortgages (I don't know if this applies to other offset mortgages as well) is that you decide how much you pay each month in the form of a standing order (as long as it is enough to meet the monthly interest payments) and it is your responsibility to ensure that the amount is sufficient should the amount that you are offsetting, or the interest rate, change.

I had assumed that if, say, I added £5k to a savings account which was offset against the mortgage then my monthly payments would be reduced automatically. Whereas in fact your monthly payments will remain the same, while the monthly interest on the mortgage would be reduced, so that you would effectively be making overpayments each month. You can contact First Direct (or use the online calculator, I guess) so find out what the approriate payment should be and adjust the standing order accordingly but it is your responsibility to do so.

I guess it makes sense given that the amount you are offsetting is likely to vary on a day-by-day basis and you will know better than First Direct what your average balance is likely to be over a future period. I just hadn't appreciated this aspect of it before.

I would be interested to hear from anyone who has an offset loan (appears to work like an overdraft at the same rate as the mortgage) because I am considering taking one of these out at the same time to pay off an existing loan (which has a higher rate of interest).

honest_guv

OK, I have to admit to still being slightly confused by the whole offset / overpay thing.
As far as I can see they are effectively the same i.e. if I had a £100,000 mortgage, and a £10,000 windfall, it wouldn't make any difference to the amount of interest I would pay whether I kept it in a linked account, or used it as an overpayment (is that correct?).
Either way, the interest I would be paying would be reduced. As hangover metions above, any repayments on top of that are by standing order, so are under my control and wouldn't change unless I changed them.

The person at FD was trying to explain that there was a difference between offsetting and overpaying, but I still can't see it. Can anyone explain?

Also, in FD's 'ultimate guide to your offset mortgage' (not so ultimate in my opinion!), it says on page 2 'You can re-draw capital at any time, up to the agreed limit on your mortgage, or 80% of your property value, whichever is lower'. On page 7 it then says 'If you have already paid some of your offset mortgage off then you are able to re-draw the funds'. Doesn't this contradict itself? i.e. page 2 seems to say you can borrow up to 80% of property value, but page 7 says you can only draw back money you've already overpaid? Can anyone explain?

Evergreen - yes, you can overpay (and then underpay if your LTV is less than 80%)

Dan_collins - Can you explain why overpaying saves you more in most cases? (i'm not disagreeing, just trying to understand!) and also, isn't this offset mortgage the best 10 year on offer, even if you don't use the offset?

Guv

kingkano

If you were to move your current account to them and offset this then the balance moving through your account would reduce the interest each month (minutely in most cases to be fair) and would not involve any overpayments being made.

The theory being all this minute reduction in interest over years would add up to being quite alot off your mortgage.

Offsetting is only really worth considering in cases where your savings interest is enough below the mortgage interest to be worth it (or your higher rate tax payer). Or most importantly if you have your current account offset.

Dan_Collins_2

The maths is complicated and I have never bothered to learn it, however for what ever reason while using my system to compare, the savings for over paying always beats offsetting. I believe its because while offsetting you are not actually clearing the balance so you only save the interest and at the end of the mortgage you still have to pay the amount off.

I imagine somebody more technical will explain and prove me wrong, but hey!

Gambler

my current fixed deal with C&G expires 31/05/08 am I too early for the FD offers?

hangover

Dan_Collins wrote: »

The maths is complicated and I have never bothered to learn it, however for what ever reason while using my system to compare, the savings for over paying always beats offsetting. I believe its because while offsetting you are not actually clearing the balance so you only save the interest and at the end of the mortgage you still have to pay the amount off.

I imagine somebody more technical will explain and prove me wrong, but hey!

I just checked this using First Direct's offset mortgage calculator and it appears to be right, although I still don't really understand why. Taking the 4.99% fix rate with a 25 year term, monthly repayments on a £100k repayment mortgage which is offset by £10k are £545.83, wherease monthly repayments on a £90k mortagage which is offset by nothing are £528.37 (i.e. a saving of £17.46 a month = £1,047.60 over the 5 years).

So it appears to make more sense to overpay the mortgage rather offset it, given that you can always redraw the money if you need to.

ixwood

That's very weird. Surely you just pay the amount owed with the offset money on completion. It looks like it should be identical.

I not disputing it's different, just have no idea how it can be. Any body know?

InMyDreams

So in your example, would that 10k be offset throughout the whole 25 years?
During the last few years of the 25 are you still paying £545.83 per month as it's fixed?

Does this eventually bring your mortgage balance down to £10k which is then cleared by the offset? (In which case certainly just paying £528.37 per month on a £90k mortgage to start with certainly sounds preferable.) Or does this bring your balance down to zero in which case you can then remove the 10k that was offsetting it and pocket that? And how does it work in the period when your mortgage balance is less than what you are offsetting?