Offset Mortgages -- the Numbers

Joe_Bloggs · 9 July 2004 at 1:14PM

It's my fault!
I did not realise that you were doing a comparative study between types of mortgage and savings schemes. I thought you were just explaining offset mortgages. It is all clear now after a nights sleep.

I could not compare what I had allready with what I allready had hence I abused the equations and came up with a divide by zero.
I appologise.
JB.

DiggingOut · 9 July 2004 at 5:15PM

No, this was a useful exchange because the original post wasn't very clear, and your confusion made that obvious.

This was partly because I wrote it with the background of the prior discussion, so I was responding to it and other questions about whether an offset was worthwhile in certain circumstances. But while the initial post does refer to that kind of comparison, it wasn't as clear as it could be. Probably still isn't, but it is a little better now. So I'm glad you posted as you did, because others might have wondered the same thing and not said anything.

Pal · 9 July 2004 at 5:45PM

Wot Dug said, especially this bit:

Flattery will get you everywhere, especially if it is accompanied by large cheques in the post. ;D ;D

Joe_Bloggs · 12 July 2004 at 2:02PM

I agree with all the calculations now that I have worked them through. Some real world numbers including available interest rates may be illustrative. I know the rates are volatile and tax circumstances vary. An illustration of the calculations might inspire people to do the arithmetic for themselves.

In my view offsets are uncompetetive but you would only get one if you had no choice and use it as a stepping stone to something better.
JB

Pal · 12 July 2004 at 3:38PM

They are great if you have a lot of savings but don't want (or can't) use it to pay off your mortgage.

DiggingOut · 12 July 2004 at 10:36PM

For instance, if you are a rate tart, and have lots of money on 0% credit cards, but don't want to actually make overpayments with it on your mortgage, because you may need it once the 0% period ends to pay off the card.

Joe_Bloggs · 12 July 2004 at 11:12PM

They might suit a high rate and irregular tax paying card tarting person best of all.
JB

System · 28 July 2004 at 3:24PM

Ok, all this is too technical for me. But, I just wanted an opinion. Barclays sold me their offset mortgage last year and it all sounded lovely. Now, reading this, I'm not so sure.

I have a total of about £25k savings which is offsetting a mortgage of about £33k. I think interest rates are 1% above base rate and the term is 10 years. But my daily report says I only have just over 7 years to go.

Should I stay or should I go?

Thanks in advance.

lisyloo · 28 July 2004 at 3:37PM

I haven't done a detailed analysis, but I would say stay.
This is because you have 75% of your mortgage as savings.
If you switch you will have to pay tax on savings and you'll probably be worse off.
In general offset mortgages work well for people who have high savings in relation to the mortgage.

I am assuming that you are an income tax payer.

DiggingOut · 28 July 2004 at 4:55PM

Sounds correct. Leaving everything else out of it, on a small mortgage the fees for remortgaging often make it uneconomical to change.

In general, anyone who has that high of a percentage in savings (and wants to keep them in savings rather than overpay on the mortgage) is likely to be better off in an offset.

Offset Mortgages -- the Numbers

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