Offset Mortgage

whu

Anyone know a useful offset calculator that I can punch some numbers in to work out monthly savings on mortgage payments?Also what is a general rule of thumb as to what % of the mortgage you should have in savings to make it worthwhile (assuming mortgage rate is higher than net savings rate)
Thanks.

silvercar

egg mortgage calculator is quite good.

20% savings seems to be a very general guideline, of course it depends on the offset deal you can get.

whu

mortgage rate is 5.29% and I am a higher rate tax payer

whu

Bump - any ideas on % of offset ot mortgage amount - thanks.

BlueScoob60

Hi,
I've got a question in a related matter that might fit well in this thread.

I'm about to take up an offset mortgage of £260,000 at 5.74%. I've got £15,500 sitting in an ISA which will earn me approx. 6.3% tax free for the year. I'm a higher rate tax payer.

I've been told that I can move that ISA money into an ISA that is linked to my mortgage, so the amount will offset the mortgage interest. Although I won't earn interest on the ISA money itself, since it will be offsetting mortgage interest, I view that as money gained against that cash asset. Also, the money will retain ISA status so I can always move it out into another ISA when I want, or put additional money into that account to further offset the mortgage.

I have no idea what is the best course of action. So my question is, will I earn more money in interest by leaving this money in a cash ISA at 6.3%, or will I save more money in the equivalent mortgage interest savings that will result by using it to offset the mortgage?

I'd appreciate a professional's calculation on this - my gut feel is that I'm better off offsetting my mortgage and maintaining ISA status on that amount, but I don't have any calculations to back up my hunch.

many thanks,
BlueScoob

Hobo_2

Hi, whu
Thought min % offset was about 40ish, but more the better as offset works well for high rate tax payers.

Is your 5.29% mtg an actual offset?

hi, BlueScoob60
I take a guess you`ve gone for a Barclays offset tracker,maybe?

Yes as a higher rate tax payer your savings would have to be earning over 9.6% gross to start bettering having them offset.

So any savings are much better offset inc cash ISA (as Barclays/IF )cater for.
btw if a joint mtg yourself+ spouse can use your cash ISA allowances to offset each tax year, if you ever get near 100% offset, as you say just move the ISA`s out.

BlueScoob60

Hi Hobo,

thanks for your swift reply. Yes we've gone for the Barclays offset tracker.
This will allow cash ISAs to be included as offset accounts - I will therefore be moving my cash ISA over to a Barclays one when the mortgage takes effect.

My wife also has about £10k in an ISA so I will suggest she does the same, as she is a top rate tax payer too.

thanks again!

Bluescoob60

Hobo_2

Glad to be of some help, bluescoob60
Any other savings/income you both have should be offset if possible as £260,000/£25,500 is only a 10% offset ratio.

Signed up for same @ 5.69% just before the crunch!
mtg starts 23July for me, more luck than forsight tho!
Basic rate tax payer myself, but can offset a high % of savings.
So i selected interest only with reduced monthly payments option,keeping the term fixed.
Barclays one of the few that let you do this( IF followed suit), so 100% offset=pay them nothing.
Most other lenders still require a payment each month like a capital payment to pay off sooner, even tho interest only.
Not all offsets are the same;)

this maybe of use
http://forums.moneysavingexpert.com/showthread.html?t=471&page=24

BlueScoob60

Thanks Hobo,

yes already have that covered. I'm going to cash in £30,000 of premium bonds, which whilst fun to look up on the 1st of each month, isn't giving me the return on the money I should be getting. Ditto for the wife who has about £15,000

That should give us an initial offset of about £70,000 and I plan to pay into the cash ISA each month.

By my calculations, I can reduce the mortgage term from 17 years to 13 years and save about £60k in interest payments over the term. KER-CHING!

....and STILL have all our savings at the end of it.

What do you recommend for that time when the offset amount gets near to the outstanding mortgage balance? I don't particularly want to just pay it off, as it is essentially our emergency/life savings, although I've got a life insurance policy that matures in 2016 for about £30,000. I'm thinking about taking that £30k and paying off a lump sum.


What would you do?

silvercar

I know people that live with their mortgage balanced by savings and so make no monthly payments each month. That offset pot is effectively a pool of money that can be called upon at no notice with an interest rate of your mortgage rate.

Personally I would stay like that until such a time that you know you have rainy day money elsewhere.

whu

Thanks hobo - yes it is an actual offset - crikey 40% is a bit higher than I thought! but I guess anything is better than nothing even if it is say 15%