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BALIX
1st Nov 2005, 11:23
Anyone got one of these? It is time to change my mortgage again and these look quite tempting, especially as I can't be arsed to move to a different provider. The thing is, to put a decent amount of money into the savings 'pot', I would have to move it from a number of ISAs that me and the missus have. Looking at the fact sheets, however, seems to indicate that the benefit would still outweigh the cons by a couple of percent. I just can't get anyone to confirm it as anyone I speak to is 'not able to give advice on that aspect, sir'. I guess they are all scared of being sued if it goes horribly wrong...

So over to you and I promise I won't sue any of you.

Incidentally, they are an Aussie invention apparently.

slim_slag
1st Nov 2005, 11:44
You will pay more in interest for an offset mortgage, basically the bank takes a cut of your reduction in tax paid on the interest you would have earned on your savings. I looked into this recently and worked out for my particular circumstances I would need to have around 75k in the savings account to make it worthwhile. Anything less you would be better off using the money to pay the principal down on the mortgage, anything more you would be better off having an offset.

It depends on a lot of things, so you need to work it out yourself, and I have found most financial advisors are rubbish at this sort of thing as it is outside their box. Put it all in an Excel spreadsheet and crunch the numbers.

G-CPTN
1st Nov 2005, 11:52
Remember, thongs can go up as well as down.

BALIX
1st Nov 2005, 12:17
Well, if I put all my savings in the pot I would be paying a third less interest as those savings add up to a third of the outstanding amount on the mortgage. However, the monthly payments remain the same so I would be overpaying by that amount. This money can go to pay off more of the mortgage capital or be deposited in the savings pot. The mortgage rate quoted is 5.25% variable (0.75% above base rate) so I would be, in effect, paying myself interest on that amount in the savings pot at a rate of 5.25% net. This is equivalent to about 8% gross as I'm a higher rate taxpayer.

The rate I'm getting in the ISAs is 4.75% net (and gross) whilst the other savings account I hold pays 5.15% gross but you can take off nearly half of that in tax. So it is a good idea to shove it all in the savings pot. Isn't it?

By the way, the 5.25% mortgage rate is as good as any offered by my current lender to an existing customer. It also remains at base rate + 0.75% for the entirity of the loan, unlike other discounted mortgages.

wobble2plank
1st Nov 2005, 12:30
Have to be brutally honest but I've always found that reducing the capital sum on the mortgaged property to be far and away the best money saving option.

Recently p**sed Nationwide by clearing a mortgage within a 5 yr reduced rate policy after negotiating a no redemption policy.

If you look at the figures for a 25 yrs mortgage at the current interest rate you will pay back 1.98 for every 1.00 borrowed. If you plough all available savings and cash into a daily interest calculated, repayment mortgage you can pull that down to approx 1.20 for each 1.00 by redeeming early.

Look at the interest rates over the 25 yr period and opt for the best mortgage which allows you to overpay and clear early. Adds security too. No savings scheme will give you the same comparative interest saving.

Cheers

W2P

BALIX
1st Nov 2005, 14:24
I'm apt to agree with you Wobble. It is surely the case that when the mortgage rate is higher than the savings rate, which it invariably is, paying off the mortgage is better than running up a wodge of cash in a savings account. This offset mortgage seems to be a good way of doing that whilst allowing you to retain the savings capital to use if you need it.

gas path
1st Nov 2005, 14:39
Why not move to a different provider? I have just moved mine and got a rate of 4.7% fixed for 2 years, shaved 11 months off the remaining term and still saved 25 quid a month.
I was suprised at just how easy it was to shift lender, didn't do anything except for a couple of signatures.
AND it left my peps/isa's intact for a rainy day.:ok:

G-CPTN
1st Nov 2005, 14:59
The 'logic' of borrowing money (and paying interest) becomes positive when the item bought rises in value faster than the amount that you have to pay to recoup the loan (over the loan period). Used sensibly, you borrow MORE than you can afford (to pay in a lump sum) and reap the reward when you dispose of the asset (which has increased in value ahead of the loan). Of course you have to be able to service the debt, otherwise the sh!t hits the fan and you loose (in a big way). Borrowing money when you already have money invested elsewhere (earning less than you pay in interest for the loan) is not a sensible option. Do you need the security (or flexibility) of having money on deposit?

BALIX
1st Nov 2005, 15:59
Gas Path

The answer is simply that I can't be arsed going through the same old rigmerole every two years. I did it two years ago and it wasn't 'much' hassle but it was hassle nevertheless.

Tango November

I probably don't need the security per say of having a third of the value of my mortgage on deposit which is why this type of mortgage is tempting. Yes, it is still there on deposit but it is working for you at the mortgage rate rather than the lower savings rate. As for the asset part, well, that doesn't really enter into it as it the outstanding amount is a fraction of the value of the property (about a quarter). I've never seen property as an investment anyway, more a place to live and my house is quite modest compared with many of my colleagues on similar income.

Anyway, thanks for all the advice.

BOAC
1st Nov 2005, 18:11
I have been 'offset' for a few years (some say longer:D ) and cannot fault the logic. Remember in the calcs that the interest you WOULD have paid comes out of taxed (40%) income when you look at it.

Rainboe
1st Nov 2005, 18:36
So who has the best Offset mortgage arrangement now? I switched to my current mortgage through Savills. My 2 year deal ended 2 years ago, so overdue for switching again, but I did find even through Savills it was more hassle than I expected.

jimgriff
1st Nov 2005, 19:13
Me and Mrs Jimgriff have just swapped to Natwest offset and if we save 400 a month in a new savings account can pay off the mortgage 6 yrs early and save a packet...woo hoo!!!:ok:


ps. should add thatI was on an underperforming endowment before and we'll keep that going to get the lump sum on maturity....:E