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Can someone explaine what an offset mortgage is please?

(19 Posts)
ihatethecold Sat 12-Mar-16 18:41:48

We will remortgage next year and I'm thinking we might get an offset mortgage.
We will have a lump sum of money and about £100,000 left on the mortgage.

Maturecheddarcheese Sat 12-Mar-16 18:45:45

You can offset your mortgage interest by putting savings into the mortgage account. The difference with paying off a lump sum is that you can get these savings back out. You still have to pay a monthly payment though. Anything above that is offset.

ihatethecold Sat 12-Mar-16 18:49:25

Thanks, am I right in thinking that we won't get any interest on the lump sum but it will reduce the interest on the mortgage?

PriorityCatchmentHell Sat 12-Mar-16 18:50:27

An offset mortgage allows you to 'offset' your savings against your mortgage.

So, you have a £100k mortgage and, let's say, £10k savings. Instead of getting interest on those savings, the bank calculates your mortgage interest as if you've got a 90k mortgage.

It's acts like paying off a lump sum with the flexibility to get the money back if you need it

mimishimmi Sat 12-Mar-16 18:51:12

This was one of the best things ever for us. It took years off our mortgage which is now paid off (can't really upgrade though without taking out a much larger one which is another story). The higher the amount of savings in your offset , the lower your interest.

Piffpaffpoff Sat 12-Mar-16 18:51:20

Is that the kind where your mortgage and savings go in one 'pot' so instead of getting interest on your savings it is taken off your mortgage, so you pay less interest on your mortgage?

So say you have 20k savings and 100k mortgage - they get lumped together so you are only paying interest on 80k, but you can dip in and take money from your savings as and when you need to, so you take £10k of savings to buy a car then you change to paying interest on 90k of mortgage?

It's a more effective way of using your savings I think, while savings interest rates are so crap.

ihatethecold Sat 12-Mar-16 19:00:21

Sounds like a good plan.
We will have a lump sum of 200k.
We were thinking of paying off 50k off the mortgage and having a 50k mortgage
Would we only have to put 50K in the offset mortgage and the rest in a separate savings account?

Maturecheddarcheese Sat 12-Mar-16 19:23:20

If you are getting a lump sum of £200,000 and your mortgage is £100,000, why don't you just pay off the mortgage? I'm sorry if I'm being dim.

caroldecker Sat 12-Mar-16 19:42:18

Why have a mortgage - interest at, say 2% is £1,000 a year. Interest income on £50k 1% is £500 and, probably £200 tax
so £800 a year worse off for 20 years. Cost £16,000 for little benefit.

ihatethecold Sat 12-Mar-16 20:29:18

That's interesting. I would prefer to pay off the mortgage but my dh doesn't want to tie up all our money in the house.
I will show him this thread.

caroldecker Sat 12-Mar-16 20:49:43

So what does he want to do with £150k of savings that cannot be achieved with £100k?

ihatethecold Sat 12-Mar-16 21:05:03

I'm not really too sure. He has been to retirement seminars at work and they have told him not to tie up his money.
With this info you are all giving me I can show him that it would be more sensible to pay off the mortgage.

didireallysaythat Sat 12-Mar-16 21:10:10

Some offsets allow you to offset ISAs so you can retain the tax benefits, reduce your mortgage interest and still dip into your ISA savings if you need to.

MsRinky Sun 13-Mar-16 16:36:05

If you offset, your "savings" interest rate is the same as your mortgage rate, and as it is a reduction in the interest you are paying rather than interest you are receiving, and as such isn't taxable. We have our mortgage fully offset - we pay no interest at all, but retain access to the savings if needed.

ihatethecold Sun 13-Mar-16 17:24:38

Thanks, This is all so useful to read

19sharon Tue 15-Mar-16 21:01:50

I have an offset mortgage and quite literally it is the best thing ever. We have had the mortgage for 9 years, and our 25 year mortgage will be paid off in three years time - as at last calculations. We have saved a substantial amount in interest, and our savings would have earned very little with the current economic climate. I am so pleased we arranged our mortgage like this.

ihatethecold Tue 15-Mar-16 22:05:30

The more I read about them the more it sounds like a really good idea

Familylawsolicitor Tue 15-Mar-16 22:11:18

We had a lump sum of £100k from sale of an investment property and put it all against our £150k mortgage. We now pay interest on only £50k mortgage yet have £100k cash to play with should we need it. As long as savings rates are less than mortgage rates it's a good deal and means that the money is not tied up. But if you're going to have £100k left even after paying off the mortgage I'd just pay it off unless you're intending on doing a lot with that extra 50k eg spending it all on an investment property or major renovations

FishWithABicycle Tue 15-Mar-16 22:24:48

I looked into an offset mortgage because I had savings available worth about a third of my mortgage debt and actually concluded it wasn't a sensible thing to do because the best interest rates on offset mortgages are much greater than the interest rates on normal mortgages. It would be worth it with savings worth significantly more than half the outstanding mortgage (60%+) I think.

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