Woolwich Offset

Jonny_Kronenburg

Just been speaking to the Woolwich regarding their offset calculation. The guy said the daily saving is

Offset balance * Mortgage interest rate.

In other words, it doesn't take into account your Mortgage balance at all. I was considering knocking £10k off the Mortgage balance, but this will actually mean my offset benefit will reduce as my Offset balance will reduce by £10k.

It also means that £50k today will have the same benefit in 10 years time, ie there'll be no compounding effect whatsoever.

Is this how people understand offsetting to work? I thought it'd use the Mortgage balance somehow.

Thanks

Jonny K.

Trying_to_be_good

The interest you pay would normally be the interest due on the total mortgage.

The BENEFIT of having money in the offset savings is 'offset balance times mortgage interest rate'. So that is the daily SAVING of having money in the offset. If it wasn't in the offset, you wouldn't have that saving - however if you REPAY the mortgage, i.e. the mortgage balance is lower, you won't be charged interest on it in the first place.

Ordinary mortgage - pay interest on whole amount. - say £100,000
Offset mortgage - pay interest on whole mortgage (say £100,000) less offset savings (say £40,000), i.e. say £60,000.

Reduce the 'whole mortgage' figure by £10,000 and you also reduce the offset savings by £10,000 - no overall difference, but you're certainly not worse off.

Ordinary mortgage - pay interest on whole amount, now £90,000
Offset mortgage - pay interest on whole mortgage (now £90,000) less offset savings (now £30,000) i.e. £60,000.

Jonny_Kronenburg

Ahem yes, was being a bit remedial there. Thanks for that.

Jonny K.

Trying_to_be_good

It doesn't help that call centre staff answer the exact question you ask, rather than giving the useful information you need! Can be misleading, even though it's truthful...