Abbey Flexi Plus Mortgage - pay off capital or offset?

lauren565

Hi all fellow mfw's!

after reading a fellow members post i am now a little confused. :rolleyes:
We have an abbey flexi plus mortgage, real term 20 years but got it down to 12 with regular monthly overpayments of £150 (predicted savings of 22,000 in interest!) and 8 years sheared off. However, have built up 1,500 in the savings pot now and was wondering if its best to phone up tomorrow (direct debit due out 4 mortgage then) and asking if they can pay a chunk off the capital with the savings pot balance. This would reduce the capital balance but not the term. However, with the new capital balance, the repayments would be reduced, and I would be in a position to overpay even more, then intend to just keep repeating the process. Is this a stupid way of doing it or does it make sense? Have absolutely no plans to ever borrow more off this mortgage, and dont need to keep the funds in the savings pot for emergencies as I have savings accounts with ING and Conventry BS for this. What do you think?????

Any info would be appreciated. Thank you so much!

lauren565

is anyone out there? Waiting for a reply please..... need to ring abbey!!! PLEASE, ANYONE?

Sweets2

hi lauren565
saw no-one answered yet so thought I'd give it a go (fingers x'd a knowledgable advisor type will be along soon!)

if it's properly offset that sweeping it to pay off the capital versus leaving it to grow as offset savings should be exactly the same thing. reason being that you're only paying interest on the balance between the amount you owe minus the amount saved. BUT the way it physically happens with cash movements is you pay interest as if you owed the full amount, and they "rebate" you the overpayment back into your savings pot.

Sweets2

The booklet that they'd have sent you when you originally took out the mortgage will have what I just described above properly illustrated.
effectively when I'm trying (and failing!) to say succinctly is that making bigger overpayments yourself or having them do it by adding to your offset ought to have the same effect, so it's up to you whether you like seeing the total grow or if you're happier knocking it off the capital owed right now.

lauren565

hi all just an update - i did a capital repayment yesturday and the new repayments starting 1st March will be lower but will start higher overpayments. Abbey said they werent allowed to advise me which way to do it, it was up to me, so i just did the capital repayment as it will give me more leaway to overpay more. Thanks all.

ganonman

Basically with an Abbey Flexi Plus mortgage it depends on what your goal is.

Providing you can afford your current monthly payments then you should not do a cap rep, you should always put it into your savings pot as this savings pot is almost like a tax free savings account.

Eg: Say you have a 100000 mortgage and are paying £500 per month.

Then you put 5000 into the saving pot.

You would now be paying interest on 95000 but still paying £500 per month.

Lets say that saves you £30 interest per month. That £30 you are overpaying will then go straight into your savings pot.

So now you have £530 in you savings pot and are only paying interest on 94470 of your mortgage.

Say it saves you £32 this month and now means you have £562 in you savings pot.

etc etc. (PS: the figures are made up for the example)

Basically it means the value in you savings pot will go up more and more each month and more interest will get offset each month. Taking months off your mortgage and potentially thousands in interest.



So here's the best way to look at it in my opinion:
If you can't afford you monthly payments then do a capital repayment, but this will not reduce your term and if this is all you ever do then in a sense it partly defeats the object of a flexi mortgage.

If you can afford monthly payments then always pay the money into you savings pot as after tax you are unlikely to be making that sort of interest rate in a savings account.


Sorry if the above is not explained very well. Also I'm not a financial advisor I just happen to know how these mortgages work very well (with Abbey at least). And due to FSA regs the people on the phones on customer service can not give you advise on your mortgage, just the facts.

ganonman

lauren565 wrote: »

hi all just an update - i did a capital repayment yesturday and the new repayments starting 1st March will be lower but will start higher overpayments. Abbey said they werent allowed to advise me which way to do it, it was up to me, so i just did the capital repayment as it will give me more leaway to overpay more. Thanks all.

If you had put the money into the savings pot instead then you would have been overpaying on a monthly basis without really noticing it as all the interest you offset goes straight into your savings pot.

melvis

The Abbey Flexi Plus mortgage is meant to designed to work as follows:

Let's say for ease of figures, your mortgage is for £100000 and your monthly payment is £600.00 but you phone up Abbey and request a fixed monthly payment of £700.00. Each month £600.00 of your payment goes towards paying your monthly interest charges/capital repayment, the extra £100.00 each month is credited to your Savings Pot. You will then earn interest on your Savings Pot balance at the same interest rate as your mortgage.

If you choose to keep the money in your Savings Pot, then eventually the Savings Pot balance will match the Capital balance, the 2 will merge (the credit paying off the debit) and your balance will be £0.00. Having the money in your Savings Pot allows for thing such as payment holidays (they will debit the monthly payment from your SP balance).

If you use the balance of your SP to make a capital reduction to your o/s balance and, using the above example, your monthly payments would go down to £500.00 but you continue to pay your fixed monthly payment of £700.00 it just means that more is being credited to your SP each month.

Neither of these options will pay off your mortgage quicker than the other. The first option gives you the benefit of payment holidays/drawdowns from your SP. The second option gives you the benefit of a lower required monthly payment should you not be able to afford the fixed payment of £700.00 any longer.

I hope that made sense :eek:

ganonman

Oh, almost forgot. When your saving pot is the same balance at your mortgage it will automatically pay off your mortgage, at that point you will get the choice to keep open at a £0 balance or redeem.

You can always call 0845 6000346 and ask for a flexi projection of how one off/regular overpayments will affect the term of the mortgage. (This is free)

edit: And putting the money into the savings pot (providing you don't take it out again or take payment holidays like melvis said) will effectively reduce the term of the mortgage as it redeems when the s/pot is same as balance. (A flexi projection will show you how)

lauren565

thanks !

crockpot

I look at it this way, if it`s in the savings pot I can draw it out and apend it if I wish to or need to.

If I make a physical capital reypayment I can`t.

So I try to keep some `just in case` money in the offset savings and when it gets over a certain amount repay.

It`s also worth remebering that if the s***t hits the fan they will lend you more or freeze repayments- not that I would go down that route unless it was really bad, trying to decrease- You know what I mean!