Offset Mortgages protection from rising interest rates?

dpw

I am currently looking to buy a new property for up to 350K, with a deposit of apporx 100k (LTV 71%). the good rates are quickly vanishing and whereas earlier i thought a fixed deal would be good, the rates do not now appear so appealing. I am not keen to be tied in to a fix for more than 5 yrs due to possible change in work comittments in next 5yrs.

We have £11,000 in savings + £6000 ISA to offset, and currently could easily afford to overpay. If I understand the offset process properly, If I initially overpay, together with my offset accounts, then at a later date should the base rate increase I could use this to reduce the impact of rising rates on the monthly payment.

Am I correct here, and can someone offer any further advice on this? I can't seem to find a offset calculator that will show me how rising interest rates affect the minimum payment taking into account the effects of the offset accounts

happybroker

If you are worried about rate increases then some would say consider a fixed rate. There are plenty out there that you can offset against.

To work out what difference a rate change would make take the mortgage balance, deduct the amount you have offset, multiply by 0.25% and divide by 12 to give you the increase/ decrease in the monthly interest charge.

The amount of money you have offset will affect the amount of money you are charged interest on which will obviously be of benefit.

Yes good rates are disappearing but some lenders dropped them yesterday also. Speak to your broker, if you don't have one it could be an idea to find a good one as there are loads of deals out there at this ltv.

Good Luck

Conrad

Yes you are correct. The One Account for me is the preferred option. As for the calculator I do not think you will find a tool that will do as you want, it would be far too complex and remember every person would have a a slightly different expectation/question so the calculator would have to be extremely complex.

A more simple approach might be this;

The INTEREST cost for a rise in rates of 1% on a £250,000 mortgage is £209 per month.

So if your offsetting and overpayments have reduced the balance by say £2500, this buffer would equate to about 12 months payments where rates are 1% higher.

allan673

look at first direct,
thats who im with, ive got a 10 year fixed rate offset mortgage, i applied in feb 08 and grabbed the 5.15% 10 year fix they had then.
i cant recomend them highly enough.