Advice Wanted - First Direct 5.15% 10 Year Fix

ixwood

They pay you their SVR in interest... lol. They should anyway!

hangover

ixwood wrote: »

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?

My best guess is that although the monthly interest in the two situations should be identical, when you are offsetting the capital repayments do not change (because you are still gradually paying off the entire £100k) whereas if you overpay the capital repayments are reduced (because you are now only paying off £90k).

In which case, offsetting should not really be any more expensive in the long run. It just means that you are delaying paying off some of the capital (by keeping it in a separate pot) rather than paying it off upfront (I think!)

Dan_Collins_2

With offset you dont pay anything off, the balance is still there, you offset and in most cases you dont pay any interest on the offset amount. With overpayments you actually pay off the capital, so you save interest on a smaller amount but you wont have to pay the capital off in the end.

I personal would over pay but it does depend on each case and what needs the clients have.

Standard life Bank have a good calculator, they used to have good rates but are off the boil!

Dan_Collins_2

Remember the banks always win!

InMyDreams

ixwood wrote: »

They pay you their SVR in interest... lol. They should anyway!

Well, yes, exactly. So if you offset using hangover's example, you won't actually end up paying £545.83 for the whole 25 years if you offset. So how does that work? I thought the idea of a repayment mortgage is that the repayment is calculated to stay the same (if no change in interest rate). If you overpay at the start, you will be paying £528.37 for the whole term. So his example does not illustrate as he suggests that overpayment in that situation is necessarily better. All it illustrates is that initially payments will be higher if you offset. To me that sounds like that should be a good thing because surely it must mean that the capital is being chipped away faster??? Which is the reason people like to offset. But you couldn't achieve the same by overpaying that saving of £17.46 a month?

Argh.... I'm not sure if I'm just confusing myself, now. But I'm sure bottom line is (IMvHO) rates being the same, both methods are the same and the only thing that matters is the *total* amount each month you shove into the mortgage and offset. How you divide it up isn't relevant. The only other consideration would be exactly how easy it is to then claw back the money you have overpaid/offset, should you need/want to.

InMyDreams

hangover wrote: »

My best guess is that although the monthly interest in the two situations should be identical, when you are offsetting the capital repayments do not change (because you are still gradually paying off the entire £100k) whereas if you overpay the capital repayments are reduced (because you are now only paying off £90k).

In which case, offsetting should not really be any more expensive in the long run. It just means that you are delaying paying off some of the capital (by keeping it in a separate pot) rather than paying it off upfront (I think!)

Yes, I think I'm understanding you. And this would agree with Dan, I think? That overpayment is best? Because if you're delaying paying off capital, you will end up paying more interest (unless you conscientiously overpay by your savings each month too as you go along). No such thing as a free lunch and all that.

hangover

InMyDreams wrote: »

Yes, I think I'm understanding you. And this would agree with Dan, I think? That overpayment is best? Because if you're delaying paying off capital, you will end up paying more interest (unless you conscientiously overpay by your savings each month too as you go along). No such thing as a free lunch and all that.

I'm not sure that overpaying necessarily is best. In my mind, whether you overpay the £10k or offset the £10k you will only be paying interest on the remaining £90k so interest payments will be the same. It is just that capital repayments are larger when you offset because you haven't reduced the capital.

Think of it like this. Say I owe you £200 which I have to repay you over 10 months, and I have currently have £100 in my pocket. I could give you the £100 straight away and then you would only charge me £10 a month (assuming no interest was payable). Or I could keep that £100 but then you would charge me £20 a month. The end result is the same (i.e. I pay you £200 in total).

Normally, if you were charging me interest, then the second scerario would work out more expensive (because I would be paying interest on £200 in the first month, rather than £100). But offsetting is like you saying that you will only charge interest on what I owe you less what's in my pocket, so I would end up paying the same (i.e. the interest payments would be the same but it's just that rather than paying £100 more at the start, I pay £100 more over the course of the 10 months).

So when you offset you are effectively keeping some of your money in your pocket (where you have ready access to it), rather than paying it upfront (where you could borrow it back). You still pay the same interest, but your monthly repayments are bigger than they would be if you had overpaid because the amount of capital to be repaid is bigger.

TighterThanTwoCoatsOfPain

stumbled over this deal by accident when setting up a sharedealing account!

cant find any mention of early repayment charges in the first 10 years? I know its offset etc so could in theory offset by the full amount and hey presto...
Buuuuuuuut lets say for arguements sake you have to sell your house and arent buying another one so are actually closing the mortgage early..

Has anyone found the charges?

My tie in is until end of June so wouldnt be able to reserve one of these deals... very good deal on the face of it!

Jonbvn

TighterThanTwoCoatsOfPain wrote: »

stumbled over this deal by accident when setting up a sharedealing account!

cant find any mention of early repayment charges in the first 10 years? I know its offset etc so could in theory offset by the full amount and hey presto...
Buuuuuuuut lets say for arguements sake you have to sell your house and arent buying another one so are actually closing the mortgage early..

Has anyone found the charges?

My tie in is until end of June so wouldnt be able to reserve one of these deals... very good deal on the face of it!

Yes there is an ERC during the fixed rate period.

http://www.firstdirect.com/mortgages/offset-faqs.shtml#n10
If you choose a fixed rate mortgage and close that mortgage during the fixed rate period, you will have to pay an early repayment charge. This charge is calculated at 3% of the original mortgage amount during the first year of the fixed rate period and 2% of the original mortgage amount if the mortgage is closed in any subsequent year during the fixed rate period. If you close the mortgage after the fixed rate period has ended, no repayment charge will apply.

The amount of any early repayment charge will be displayed on both your Key Facts Illustration and Mortgage Offer, which you will receive should you decide to progress with a mortgage application.

That's a serious ERC!

honest_guv

But you can reduce the mortgage down to £1 by overpayment, as I was told by FD customer service