Offset Mortgage Advice

A lot of people get the fundamentals about offsets wrong and talk nonsense using tems like effective rate and only paying 0% when 100% offset.

When you offset you pay interest on net borrowing, all you are doing is borrow less, you still pay the same rate.

When 100% offset you X% on £0. not 0% on £Y

1. depends on lender how they manage the account, two examples,
Barclays : allow you to run a repayment plan, you can have variable payment, partially fixed payment(adjusted by triggers such as a rate change) or never have the payment go down(when the triggers happen)
The idea is the mortgage account gets smaller as you use up your contractual term.
First Direct : allow the account to be run on an interest only basis, payments can go to zero.

2. you pay interest on net borrowing, if that stays at zero no interest is paid.
The offset pots are your money you can use it whenever for whatever you like.

3. Rate can be important if you ever think you need to access the money and increase net borrowing.

That will depend why you are taking the offset, for many it is a way to manage cashflow and stooze to help pay off the mortgage faster and once 100% offset just keep the line of credit available.

BY getting a low rate you have the option to move the cash into investments that give a better return than the mortgage rate, a lot easier if the rate is low.

As an easy access emergency fund higher rate may be acceptable.

Remember with offsetting all you are doing is borrowing less.

Don't forget that your mortgage account on a long term fix may come with other features like a ERC if you try to pay off the mortgage account early, that means the usual caveats apply like might you move, might you want to overpay.

Also remember that if you fall on hard time the offset money counts as an asset and can restrict access to benefits(Often not an issue as the offset money is just part of a bigger set of assets).

In simple terms the funds offsetting are taken off of the mortgage balance before interest is calculated for the day.

If those two balances are the same, the mortgage is fully offset and there is nothing to pay interest on. In this case, mathematically, the interest rate is not relevant as you have no balance to levy it on.

callmemonks wrote: »

if I have borrowed £125,000 and provided £125,000 as savings isn't that 0% net borrowed?

It's £0 borrowed.