Some Advice Please

suzybrown
suzybrown Posts: 16 Forumite
in Mortgage-free wannabe
I hope someone can help. My husband and I have sold our home abroad and now have £100k in the bank. We currently have a mortgage of £170k and wondered whether we should either pay this off or use an offset mortgage. Any advice would be most welcome.

Comments

  • jonnydoe
    jonnydoe Posts: 253 Forumite
    Hi Suzy

    Paying off the capital and offsetting are exactly the same in terms of interest saved etc.. The only advantage of offsetting is you have access to your savings in case of emergencies,

    Hope this helps

    JD
  • Jays
    Jays Posts: 410 Forumite
    jonnydoe wrote:
    Hi Suzy

    Paying off the capital and offsetting are exactly the same in terms of interest saved etc.. The only advantage of offsetting is you have access to your savings in case of emergencies,

    Hope this helps

    JD

    Don't you save more tax by offsetting? ie you don't earn interest on savings as they are offset against the debt, therefore the IR cannot tax the savings that do not exist. If savings are kept separately, they earn interest and therefore incur tax.
  • Joe_Bloggs
    Joe_Bloggs Posts: 4,535 Forumite
    You do not save more tax by offseting as opposed to paying off capital. The amount is the same The amount of tax paid is zero. It can be useful to have access to the mortgage reserve in a non offset case making it almost as flexible as an offset mortgage but perhaps with a better interest rate.
    J_B

    If I had £500 in my current account (non offset) and I earned 3.2% after tax that is £4 tax paid at basic rate. Were this offset against mortgage I would save £24 in interest per year. Unfortunately I would pay £700 extra in interest per year on the capital owed on 'The One Account' rate.
    My savings are in an ISA, within my mortgage reserve and then rest on instant access high interest deposit.
  • jonnydoe
    jonnydoe Posts: 253 Forumite
    Jays wrote:
    Don't you save more tax by offsetting? ie you don't earn interest on savings as they are offset against the debt, therefore the IR cannot tax the savings that do not exist. If savings are kept separately, they earn interest and therefore incur tax.

    Correct but we are comparing paying off the capital or offsetting the savings not using a separate savings account which will incur tax (excluding isa's).
  • alecpr
    alecpr Posts: 109 Forumite
    Joe_Bloggs wrote:
    My savings are in an ISA, within my mortgage reserve and then rest on instant access high interest deposit.

    I don't understand this, you have an ISA inside your mortgage reserve, you mean your mortgage reserve is posotive and is wrapped by your ISA so you don't pay tax... do you get intrest or is it ofset by your mortgage, if the latter then your ISA is going to waste as you are not earning any taxable income on that account.
  • Thefunkygibbons
    Thefunkygibbons Posts: 1,381 Forumite
    The sums involved are greater than ISA allowances

    The question is

    Will you need the money again for a capital item?

    If not, just repay it off the capital
  • Jays
    Jays Posts: 410 Forumite
    Joe_Bloggs wrote:
    You do not save more tax by offseting as opposed to paying off capital. The amount is the same The amount of tax paid is zero. It can be useful to have access to the mortgage reserve in a non offset case making it almost as flexible as an offset mortgage but perhaps with a better interest rate.
    J_B

    If I had £500 in my current account (non offset) and I earned 3.2% after tax that is £4 tax paid at basic rate. Were this offset against mortgage I would save £24 in interest per year. Unfortunately I would pay £700 extra in interest per year on the capital owed on 'The One Account' rate.
    My savings are in an ISA, within my mortgage reserve and then rest on instant access high interest deposit.

    I take your point, but if the OP wanted access to their savings which are considerable more than £500, at £100k,and would incur tax greater than basic rate, and did not use 'The One Account' as there are better rated offsets available, once their ISA allowances are used, this is a viable option.
  • Joe_Bloggs
    Joe_Bloggs Posts: 4,535 Forumite
    @Alecpr
    Sorry What I meant to say was a list of where my savings were. Some are in an ISA some are within my mortgage reserve etc. You can supposedly use ISAs in conjunction with an Intelligent Finance offset deal. Barclays also offer a similar feature. It might be a useful feature in the short term. I don't know how. YBS allow the savings of friends and family to offset a mortgage!

    If you have £100K in the bank and owe £170K it does not mean you are better off than someone who only owes £70K. They may face early repayment penalties in remortgaging or paying off a significant proportion of the £100K.
    By putting numbers, interest rates, fees,the term , taxation rates, pension, conditions, savings per month, preferences etc into the problem then the optimum solution can be found.
    J_B.
  • brranger
    brranger Posts: 250 Forumite
    YBS allow the savings of friends and family to offset a mortgage!

    I tryed this and no one wanted to play, even suggested they just save £10 pm or just link the current Acc as they would hardly notice the interest then.

    Parents can be so mean!
    Thought I saw the light at the end of the tunnel....Then got hit by a train! :A
    Lightbulb Feb 2006 :o
    Debt free Nov 2011
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