Are "offsets" good for early repayment?

nelly_2

Are offset mortgages a good way of avoiding early payment penalties.

Say the amount owed is £100 000 and then I was earning at a good rate and put £1000 a week in the account on top of the payments taken out for the mortgage, then after a hundred weeks there is £100 000 in there, can you just say right take that and thats it mortgage payed, or am I missing something (I generaly do)

I know ive simplyfied the numbers but thats in the interest of errr simplyfication

The thing is I am self employed and quite often have very good weeks and want a mortgage that i can bang that money in to reduce the time/money payed. I am looking for the best type of mortgage to allow this.

Thanks for any help, Nelly.

Joe_Bloggs

If you match the balance of your offset mortgage with a balance in your linked offset current/savings accounts you will not be charged interest on your mortgage. You have not paid off your mortgage! The money in your linked offset current/savings account is yours to control. In fact this money need not be yours but could be a tax bill that has to be paid at a later date. In my view you will still have to pay the same mortgage payments but all the amount would be capital and no interest. You eventually risk early redemption penalties as you would pay off your mortgage before the original schedule . These costs can be trivial or punitive depending upon terms and conditions. Any rate chasing remortgager will have considered what the likely cost are of remortgaging, prior to the start of the SVR period.

The only thing bad about offset mortgages is the crappy interest rate that comes with them. These offset deals may be easier to get as they are less competitive in terms of interest rate.The advertising blurb tends to pander to those with visions of the future when they will have more cash than they know what to do with. In reality it may only make sense if you are a high rate taxpayer with large savings that have to be regularly paid back.
J_B.

meanmachine_2

If you want to make overpayments, then you should get a flexible mortgage. Almost every lender now offers flexibility, on both fixed and variable mortgages.

Some allow you to overpay by up to £500 a month, others by 10% of the outstanding debt each year.

Visit this site to see how much you could save:

http://www.channel4.com/4money/mortgages/features/overpayment_calculator.html

nelly_2

meanmachine wrote:

If you want to make overpayments, then you should get a flexible mortgage. Almost every lender now offers flexibility, on both fixed and variable mortgages.

Some allow you to overpay by up to £500 a month, others by 10% of the outstanding debt each year.

Visit this site to see how much you could save:

http://www.channel4.com/4money/mortgages/features/overpayment_calculator.html

funny i was on that webby before i posted this thread

calleyw

we have an offset mortgage but we not higher rate tax payers.

But when my MIL died she left us some money. And using an offset has allowed us to keep our mortgage at the same cost per month as a our last place. We have moved from a one bedroom flat to a 3 bed house.

But we do offset about 79% of mortgage. It allows us to afford to live here as the payments on a normal mortgage would mean be at £80-£100 more expensive. We could not afford it on one wage.

I know we get no interest but we will end up paying off the mortgage years early. As my last mortgage was held for about 6 and half years and we had only paid off about £4K. But I know that in 6 and half years we will have paid off a lot more than that.

So it is swings and roundabouts. You have to do what is best for your situation. And we believe that it is right for us.

And the offset does not hold all our savings we do have a little more in other places.

Yours

Calley

akmodi

Dear Nelly,

you are basically right in your assumptions---taken as a simpilified argument.

Yorkshire Building Society allows you to do this----you can have upto 3 linked offset accounts and can choose to pay net ( net of the mortgage - offset) or basic ( mortgage only).

The biggest advantage is in having the money available---you can draw out the offset whenever you want

---

but as long as its there----you do not pay interest on the same amount in your mortgage.

Also----if you had the extra cash and kept it in any interest paying account, you would have to pay tax on the interest earned. Looking at it another way---you are effectively earning the mortage rate + 40% as a higher rate payer (simplified accounting----actually: mortage rate/0.6 )

Cheers

SammyD_2

Agree with Akmodi - it is the advantage of having the money available to draw on if needed, but effectively paying off our mortgage in the meantime that is great...as we were starting a family reasonably soon after buying our house and were not sure what that would mean in terms of income etc, we were not willing to make overpayments, but wanted to have the flexibility to get our hands on the money if we needed it.

And as Akmodi says, the Yorkshire Building Society product lets you either pay the monthly amount you would pay without the offset effect (ie you make are making an overpayment every month), or use the offset to lower your monthly payment. My husband was also at that time self employed and so had to save money for tax so we could use that in the offset then draw it out to pay the revenue...

The YBS interest rate seems one of the lowest around for an offset product, although I have found it a little cumbersome to use sometimes when compared with a current account type offset. I also noticed last night that you can now access all your offset account info with YBS on the internet, although they have not yet publicised this.

Having said all that, we are in the process of remortgaging with Britannia on a straight repayment to get a lower rate.