Offset Mortgages -- the Numbers

giger · 2 March 2014 at 1:57PM

I'm also thinking of going offset but it seems it is difficult to compare these mortgages.

I've currently got a lifetime tracker with Britannia, but there is a 1% penalty to pay for another 18 months if I remortgage elsewhere.

Santander seem to offer a decent offset, but it comes with £495 setup fee, plus you have to pay costs (survey and solicitors fees). Coventry Building Society also have a tempting low fee offset but it is based upon their own flexible rate, currently 2%. Does anyone have any experience of these products?

Are there any other good offsets to consider right now? I don't qualify for the FD one.

I will have a lump some equivalent to 50% of my mortgage to potentially offset.

brightlight14 · 17 March 2014 at 2:24PM

Hi there,

I'm new on here (and terrible with finances!) and would be grateful for your advice.

I have an offset mortgage which is fixed at 3.45% for the next two years.

I have just over £60k left on the mortgage.

I also have index-linked savings certificates with NS&I (which they no longer issue) which total £36k, along with an ISA account doing poorly at the moment (1% - I know I need to sort this) which has £14k in it. So I have £50k in total.

I'm wondering if it's better for me financially to withdraw the money from the index-linked savings certificates and the ISA and put it all in the offset mortgage account? Or is it better to leave the cash where it is?

Sorry if this is obvious, but I haven't a clue which is the best option!

Thank you in advance for your patience with me and your advice.

Nelly

OverlandLandy · 17 March 2014 at 3:31PM

With £50k in savings and investments I would say you are actually very good with finances!

:money:

You need to calculate the interest (less tax at the relevant rate if appropriate) you will earn in the next 2 years and compare this to the savings you will make on the mortgage Interest charge vs the capital reduction... if that makes sense?

Basically if you have a £60k mortgage.. but put in all your funds of £50k into the offset account you will only pay interest on the difference ie the £10k. You need to keep your payments the same as they are now and in effect the £ that is not going to the Interest charges will reduce your mortgage by a capital amount. You will earn NO interest on your savings but neither will you pay tax.

Play around with the offset Mortgage calculator (links at start of thread I think). It will be amazing how quickly you can reduce the balance outstanding

HOWEVER A BIG WORD OF CAUTION.... DO NOT BE TEMPTED TO SPEND A SINGLE PENNY OF THE OFFSET (£50k) OR IT DEFEATS THE WHOLE REASON TO HAVE AN OFFSET!!

brightlight14 · 17 March 2014 at 3:49PM

Thanks for the help OverlandLandy! I think I've just been lucky as I'm rubbish at maths and figures etc!

There's no tax to pay on the savings certificates or the ISA so I'll work out an estimate of the interest I'd earn in the next two years on those, compared to the interest on the mortgage. I'll try and use the offset mortgage calculator to help me.

Thanks ever so much for explaining it to me clearly!

OverlandLandy · 18 March 2014 at 12:26AM

Here is the calculator that you need... http://www.moneysavingexpert.com/mortgages/offset-mortgage-calculator

good luck with it..

MichaelGrain · 31 July 2015 at 1:19PM

Intelligent Finance offered us an offset mortgage in 2007. This week we have received a letter suggesting that we should close our savings jars as interest rates are to drop in October from 0.7% to 0.5% . This suggestion seems to be bad advise because our jar investments value offsets interest on savings. Has anyone else received this letter? Does anyone know if this suggestion is good or bad advise?

Thrugelmir · 31 July 2015 at 1:43PM

I'm sure that you can obtain a better rate of 0.5% without much difficultly.

Offset Mortgages -- the Numbers

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