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Original poster

Offset Mortgage?

30 replies

OffsetQ · 30/01/2022 22:05

Has anyone here got an offset mortgage and would you recommend it?

Our situation is this. We've recently had an unexpected inheritance which, together with some of our savings, would be enough to pay off the mortgage when the current fixed rate expires in a few months. However we've also got children at private school with the eldest starting the exam years and the youngest just starting high school. The money would be close to enough to get them all the way through school (allowing for some pessimistic inflation increases). We've always kept a reasonable buffer for fees in cash but it would be an incredible peace of mind to know that the fees were 'banked'. We're thinking that we might get an offset and put the full amount in the attached saving account so it was essentially 'paid off'. We could then choose to either leave it like that or draw on the money for fees if we needed it or felt it was the best financial decision at the time.

Would be intersted in any views if anyone has done anything similar. We were looking at the Coventry BS fixed rates. Thanks v. much

OP posts:
Voice0fReason · 30/01/2022 22:48

I don't know what the current deals are because we took ours out many years ago. It was one of the best decisions I ever made. Saved us a load of money and took years off the mortgage. The flexibility to manage big expenditures like a new car or work on the house without having to finance it.
You do need to be good with your spending so you are always keeping on track to pay it off when you aim to.
No downsides for me.

BarbaraofSeville · 31/01/2022 04:30

I've looked at them in the past but the interest rates always seemed quite poor compared to my preferred mortgage product, a lifetime tracker so have always saved separately.

This has paid off for us as we're still on an old product with a small margin over the tiny base rate, so are paying around 0.6%, which I've always managed to beat comfortably with savings (currently using premium bonds) so in effect, 'self-offsetting' at a profit.

But it's over a decade since I looked at them, and it's likely to be a different offering in the current low interest rate environment, and it sounds like it will be something that could work for you, if you're disciplined enough to not use the money for large purchases like new cars and big holidays.

Original poster
OffsetQ · 31/01/2022 21:58

Thanks v. much for your replies. The deals we were looking at are currently about 1.89% for a 5 year fix. That's not as good as the best rates but not all that far off, especially as on our plan we wouldn't be paying any interest for at least a good chunk of the mortgage!

We're both pretty careful when it comes to spending so I don't think we'd dip into it without a thought out plan/emergency.

I am not quite sure how repayments work if you have the full amount offset. I hope you can pay it from the attached savings account as I'd rather be able to leave it and ignore it unless we needed to draw on it.

OP posts:
Bunnycat101 · 01/02/2022 07:45

The only thing to think about is whether that money could be working for you better elsewhere. Slightly tricky if you might need to draw on it for school fees but if you’ve got a large chunk of money effectively getting you 1.89% that’s quite an opportunity cost versus putting some in a pension and getting the tax relief plus stock market growth.

Asdf12345 · 01/02/2022 07:52

We considered it but the returns were worse than putting the money elsewhere.

Remember inflation is reckoned to be 5-7% at present, so at best you are still losing 3.11%

If you are very risk adverse and happy to see the value of your inheritance reduce in exchange for that security it might be your preferred option.

Hoppinggreen · 01/02/2022 07:57

We had one but unfortunately weren’t very disciplined with it and switched to a repayment mortgage as we could see that we would be struggling to pay it off at the end of the term. The rate was quite high too.
Our previous lender stopped doing them as I think that too many people were treating them like an interest only mortgage but with no repayment vehicle.
I appreciate that you sound much more responsible than we were though

jackstini · 01/02/2022 08:10

Had one for over 10 years and it's been brilliant - knocked 8 years off our mortgage and will mean I can retire early

We have flexed and remortgaged a couple of times to move money round (not moved in 20 years but the rising house prices mean our LTV % is much lower so got a better deal even spending some of the equity)

Ours is with Barclays

Original poster
OffsetQ · 01/02/2022 09:21

Thanks for the replies, it's really helpful in thinking it through. I should say that we'd probably be looking at a repayment deal. I'm hoping that whilst the full amount was in the attached savings account we could essentially treaat it as paid off as hopefully any repayment would just move from the savings account to the mortgage without us having to do anything.

OP posts:
Hoppinggreen · 01/02/2022 09:27

I think in an attached savings account it would be better, ours was linked to our current account which didn’t really work for us

Pea79 · 01/02/2022 09:35

I've been on an offset repayment for 5 years and it's a fantastic choice if you are able to offset most/all of your outstanding mortgage. I'm with the Yorkshire BS and they have different ways of making your monthly payment. I chose to fix my monthly payment so that I know roughly when I'll pay off the mortgage, but there's an option to reduce the monthly payment in line with how much is outstanding.

I will mention that your savings are only protected up to £85,000 (£170,000 for a couple), so if you have any amount over that in your offset account then it's not protected should the bank go bust.

IDidntKnowItWasAParty · 01/02/2022 09:35

Love our offset mortgage. Saving us loads of interest. But it's only suitable if you're very disciplined financially - the flexibility would work against you disastrously if not. However I know our bank doesnt offer this type of mortgage (to new buyers) anymore, which is such a shame.

Original poster
OffsetQ · 01/02/2022 09:36

@Bunnycat101

The only thing to think about is whether that money could be working for you better elsewhere. Slightly tricky if you might need to draw on it for school fees but if you’ve got a large chunk of money effectively getting you 1.89% that’s quite an opportunity cost versus putting some in a pension and getting the tax relief plus stock market growth.
Yes this is the major reason not to do it. We do put quite a bit into S&S ISAs and pensions each month but this money could substantially increase what we have in the market. This is the thing that's giving me pause for thought.

That said, we've always taken the view we should be risk averse around school fees, especially once they are getting towards exams. If we didn't to this we'd want to keep enough in cash that we wouldn't have to risk withdrawing them at a crucial part of education. We've also had some health scares/people close to us with serious mid-life illness recently so can probably see those risks quite acutely at the moment. We'll have at least one child in the key yrs 10-13 every year for the next 6 years Shock so I think for that time we'll have a chunk of cash we won't want to take risks with anyway even if we don't do this.

If we do this then our outgoings will be less so the plan is that I'll increase my AVCs to my workplace pension. They can be salary sacrificed so it's very efficient. We could choose to draw on the offset money to pay towards school fees and increase the amount further if we wanted to in the future. That might be preferable to putting a huge chunk in the market now when asset prices are so high and the crucial exam years are starting.

OP posts:
Haroweller · 01/02/2022 09:40

Had one 20 years ago and was delighted by how much it helped me to pay off my mortgage. Like a PP 8 years earlier in my case.

The only thing I would check is that in those days you paid a facility fee for any element of the facility that you had not drawn down. e.g I had a £200k Offset Mortgage @ 7% but if I only had £100k drawn down I paid 1% on the unused facility.

I am not sure if that still applies but I would check it out.

senua · 01/02/2022 09:44

Have you spoken to the school(s) about paying fees upfront? I believe some let you do that and (I think!) some let you pay the current rate i.e. you remove the inflation factor from future years.

ParentOfOne · 01/02/2022 12:32

OP, do you have enough money to repay the mortgage AND pay school fees?
If not, after accounting for school fees, how much of the mortgage would you be able to repay?
What is your current LTV?

How much lower would the interest rate of an ordinary, non-offset mortgage be?

Raindancer411 · 01/02/2022 13:05

I haven't read all the replies but we have an offset as I got an inheritance and wanted to keep it for later in life as I have no pension. We were with Accord first and now with Coventry. We have just had to draw some money out as we were over what the mortgage was. We are now just paying a tiny piece of interest and then the rest is mortgage. As the interest in savings isn't good, it's a good way of making any money work for you.

Bunnycat101 · 01/02/2022 19:11

Are you currently paying for fees out of income? I’ve found it helpful to do proper scenario planning of what would happen if I/my husband lost jobs and likely actions (eg likely hood of redundancy/getting lower paid job etc and where money would come from/what would need to stop. It may be that you don’t need 6 years worth of fees in cash.

Either way it sounds like you’ve given it a lot of thought including adding extra into pensions so it sounds like you’ll make a decision that’s right for you and your level of risk at the moment.

Original poster
OffsetQ · 01/02/2022 20:15

@senua

Have you spoken to the school(s) about paying fees upfront? I believe some let you do that and (I think!) some let you pay the current rate i.e. you remove the inflation factor from future years.
Thanks v much for the replies.

Sadly the school handbook says parents can contact the bursary and pay a year in advance if they want to. I haven't checked directly but sounds as if they don't do a deal on advance payment. Hopefully that means they are in a good place financially!

OP posts:
Original poster
OffsetQ · 01/02/2022 20:38

@Raindancer411

I haven't read all the replies but we have an offset as I got an inheritance and wanted to keep it for later in life as I have no pension. We were with Accord first and now with Coventry. We have just had to draw some money out as we were over what the mortgage was. We are now just paying a tiny piece of interest and then the rest is mortgage. As the interest in savings isn't good, it's a good way of making any money work for you.
That's good to hear! I have some really specific questions about the Coverntry mortgage if you don't mind. Could you set it up so that payments to the mortgage come from the attached savings account to avoid the situation you were in where the savings were more than the mortgage? Also, someone above suggested there used to be a fee for any unused portion of the mortgage. I can't see anything like that on the Coventry website and wondered if you had?

Thanks v much

PS I would consider putting some of it in a pension if I were you (depending on your circumstances)

OP posts:
whenwillthemadnessend · 01/02/2022 20:40

We had
One and got our mortgage paid off ten years early.

We now have just got another with Coventry in our new house and intend to pay it of when the 5 year fixed ends.

Off set really are a good deal

ReviewingTheSituation · 01/02/2022 20:44

We've been paying about £10 a month interest thanks to our offset, and will pay it off years early this year. It's at a great rate (0.75% above base rate), but it's been amazing for us. I like the long term element- we haven't had to remortgage every few years, and it's just ticked along nicely.

saleorbouy · 01/02/2022 21:03

I had a mortgage with offset from the Yorkshire Buildings Society from the late 1990's. It was a great product then and suited the way I was working at the time on short term contracts it allowed overpayments and payment holidays providing there was excess to cover it.
I couldn't fault the product, not sure how it compares now. Interest rares were 6.5% when I took it out.

Voice0fReason · 01/02/2022 21:07

I am not quite sure how repayments work if you have the full amount offset. I hope you can pay it from the attached savings account as I'd rather be able to leave it and ignore it unless we needed to draw on it.

If you have the full amount offset then you pay no interest so anything left over, stays in your account. You still have the full facility available so you can withdraw your savings up to that value at any time.

SeasonFinale · 01/02/2022 21:11

We have full amount of our mortgage outstanding in an offset savings attached in Coventry Building Society. Each month once the mortgage payment is made I transfer the same amount from offset savings to another Coventry account. In effect our entire mortgage payment pays off capital. It isnhreat to see how much interest we have saved and also how early the mortgage will be repaid. Like you we set it up like that so the money was accessible should we need it for school fees or uni or any other reason and have never had to dip into it. We do have ISAs and pensions etc so the peace of mind it gives is worth it alone.

The Coventry Building Society is very serious friendly and it is easy to effect transfers and payments.

SeasonFinale · 01/02/2022 21:13

grr autocorrects user friendly