Intelligent Finance - Help!!

pokey128

totally_confused wrote: »

Hi, just came across this post and was wondering if someone could also help me get round these different mortgage payment options as I am also currently applying for an offset from IF.

We were originally in the process of applying for an offset from FirstDirect and as we understand, the interest charged on the mortgage is made up of the difference between your mortgage and your savings. So basically it doesn't matter if you pay more or less as if the amounts goes into savings, it still comes out to the same numbers?

So surely the same applies for IF except that they have 3 payment routes?

Or is it because IF is on a repayment only option and FirstDirect is on interest only? Does that make a difference then?



And I really don't understand this poster's comments... can someone pls explain???

That was my boyfriends thoughts in my OP right at the start- that it doesn't make a difference whether you overpay or not cause the interest is only charged on the difference between savings and your mortgage - I got very confused (more so after some of the replies I got) but he sat me down with some figures and I get it now!!!

Good luck!!

Dithering_Dad

h4nym wrote: »

So - the real question is can you get a savings account that pays you more after tax than you're paying in mortgage interest.

Example:

Mortgage Interest Rate: 6.0%
Savings Interest Rate (net) : 6.5%

Put your money in the savings account and keep your mortgage as it is

Mortgage Interest Rate: 6.0%
Savings Interest Rate (net) : 5.5%

Put your money into the mortgage

Reality is that you're unlikely to get any more than 4.5% net of tax on your savings unless it's an ISA.

Good example. Just thought I'd also mention that to do a comparison, you have to remember to factor in all of the mortgage costs into the calculation to get the REAL mortgage rate.

For example, you could have a mortgage rate at 6%, but if you've had to pay an arrangement fee of £1000, your mortgage rate could be more like 6.5% after costs. To determine how much your mortgage rate really is, have a look for APR calculators on google.

Suddenly, even ISAs may not compare favourably to mortgage overpayment, especially if you have a high LTV (and therefore higher rate) and have had to pay a large arrangement fee on your mortgage.