offset mortgages

eaglesrjh

Hi all. i am keen to try to get rid of my mortgage and was looking at offset mortgages. Are they worth it?

Basically as I understand it you are not charged interest on the value of money in your current account against your mortgage? is this right?

does this change your monthly payment or the length of time it takes to pay it off?

Any help as I take these tentative first steps greatly appreciated.

Richard

debbie42

We took one out several years ago, so they may have changed, but the way ours works is like a big overdraft on one single current account. The overdraft facility is the value of the mortgage, say £100K, so if we have, say £40K in savings/mortgage repayments, we only pay interest on the £60K.

It's great for us, and has worked very well, but the rate was higher than we could have got elsewhere for a less flexible mortgage.

bockster

yes you only pay interest on the diff between mortgage balance and savings.

because rates are generally higher than other mortgages you have to have a good lump of savings to make it worthwhile. even more worthwhile if pay 40% tax.

with my offset, ybs, you get the choice of what happens to your payments;-
either a) gross payment option, payments assume £0 balance in savings a/c, remains the same throughout term and therefore reduces term.

b) net payment option, will reduce monthly payments as savings increase, but term will remain the same.

ps, have found ybs faultless in all dealings so far, would recommend.

hope this helps

phizzimum

eaglesrjh wrote: »

Basically as I understand it you are not charged interest on the value of money in your current account against your mortgage? is this right?

yes!

does this change your monthly payment or the length of time it takes to pay it off?

your monthly payment will have slightly less interest included in it, but by keeping your payments at the same amount (or higher) you will reduce the term

hope that helps!

eaglesrjh

So basically it only really seems worth it if you can have a reasonable sum of money to keep in the offset account. Otherwise due to the higher apr than other mortgages you could still end up paying more interest than before.

silvercar

eaglesrjh wrote: »

So basically it only really seems worth it if you can have a reasonable sum of money to keep in the offset account. Otherwise due to the higher apr than other mortgages you could still end up paying more interest than before.

In general offsets have a slightly higher rate, but there are exeptions. FIrst Direct recently offered a 4.99% 5 year fix that was a mrket leader and that has an offset option with it.

If you don't have much savings to offset check the interest rate carefully.