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Help me understand offset mortgages

(5 Posts)
LaDiDaDi Sat 01-Sep-07 20:40:10

I've just been looking at the intelligent finance website as when my mortgage deal expires I think I'd like to offset. I've been looking at the option whereby the offsetting gives you lower monthly payments. What I can't understand is why the forcast for the monthly payments goes down for the first 12years or so and then right back up again over the next 12years.

Can someone who knows more about this than me explain why this is?

Thanks

paolosgirl Sat 01-Sep-07 20:44:35

I used to work for IF...I'll say no more about them, though. I'm not sure why the payments should go up again...basically the amount you have in your savings/current account 'cancels out' the equivalent amount of your mortgage, so you only pay interest on the remainder ie £50K in savings and current account, with a £100K mortgage means you only pay interest on a £50K mortgage.
What was your forecast based on?

scienceteacher Sat 01-Sep-07 20:45:42

The monthly payments should be based on your outstanding debt. It makes sense to keep your monthly payments the same, with periodic reviews (eg every 6 months). Therefore you could be making the wrong payments given your debt, and this is corrected on review. No idea why there would be one set of payments for the first twelve months and a different set for the next.

One thing with an offset mortgage is that it only works if you have a decent positive balance, eg from savings or a large salary. If you are basically hand-to-mouth from month to month, you should seek out a different kind of mortgage, eg lower interest for a few years, or capped interest.

LaDiDaDi Sat 01-Sep-07 20:50:23

Based upon reasonably large mortgage but also good salary and some savings.

They offer you the option of paying off early or having lower payments and as we are still relatively young I thought it would be better to use the offset money to allow us lower monthly payments. It all looks good, payments under half original by midway through 23 year term but then rise back up again. Based on a tracker mortgage.

BigGitDad Sat 01-Sep-07 22:00:35

To be better off with an offset mortgage you will need savings of around £30,000 to negate the higher interest you would have paid. Otherwise get a lower rate mortgage, most mortgages let you pay off 10% a year penalty free anyway.
I personally like Woolwich Offset, very simple to understand, the monthly statement is simple and you can have 12 saving pots and they will let your relatives put their savings in them and it can be offset against the nmortgage.

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