Offset mortgage

[Cliffordthbigreddog]

Hi guys,

Does anyone have an offset mortgage? What do you think of them?

My husband and I want to take out an offset mortgage but are trying to find one where we can keep our savings in an ISA linked to the offset rather than a standard offset account.

Thanks in advance.

Any time I've looked, the rates on offset mortgages have been higher than standard products.

So seem rather pointless. You can do a 'self offset' where you take out a standard repayment mortgage with a lower interest rate than an offset product and save your overpayment in an ISA, which will likely pay a higher interest rate.

Eg the best mortgage interest rates seem to be around 4% currently, but you can get over 5% on a cash ISA, so you're profitting by 1% on money saved against your mortgage.

It depends on levels of saving - if you are just at the beginning of building savings, @Bjorkdidit 's point about the higher mortgage interest rate is pertinent. However, if you have savings that are a considerable proportion of the mortgage, the effective mosrtgage rate is lower and the tax situation may be beneficial - no tax to pay on savings interest, but an effective rate that beats other forms of savings and means you pay off the capital quicker. I believe many people used to use them to as a safe place for multiple years of school fees so they could be drawn down quickly.

We used one very effectively ten years ago when savings rates were low, but we had almost the whole amount of the mortgage in offset while we looked to 'upsize'. So all of our monthly payments came off the capital.

Hope that helps.

We’ve used one in the past and it was a positive.

As @SweetLathyrus said, it worked when we had a good proportion of mortgage value as savings in the account. This was at a time of lower savings rates and we ran the numbers in advance to make sure it was sensible for us.

I have also used one, when I had a big chunk of capital to save and the rates were not great savings wise and I would have paid tax too. It worked out v well

The OP was talking about money in an ISA, so tax isn't relevant.

Between your ISA allowance and the £1k annual savings allowance for basic rate tax payers, a couple could save £80k pa tax free, which would cover most people's offset needs.

Or it could be that the OP wants to designate money already in an ISA as her 'offset pot'.

Just to say our experience is different to everyone else's. We've always been able to save at higher rates than what our mortgage cost us in times of high or low interest rates.

An offset only looks good if your mortgage is more expensive than it needs to be and your savings pays a poor rate.

The £1000 savings interest allowance is only for basic rate tax payer - 40% tax payers only have £500 each. Similarly, ISAs are individual products so there may be issues linking to OP and their DH.

I can only see one that allows an ISA offset and that is Barclays.

And there have definitely been periods over the last 25 years when both mortgage rates were higher than it was possible to achieve on cash savings.

But yes, careful running of numbers is needed, it's a pretty niche product, or more people would use them.

Yes, always had them and loved them. We’ve found it really motivating and easy to overpay so ploughed loads of extra money on wherever possible. No need to keep a separate savings account for a rainy day which then never makes it to the mortgage.

I was mortgage free by 35 because we were overpaying so much. Then got a new mortgage on a bigger house and will be mortgage free again by 43, again because we chuck all additional income in there.

I’m not sure what your thinking is on the linked ISA though? And not sure they exist. A mortgage rate will always be higher than savings (well usually) so a standard offset will be better for you than an ISA rate.

I had an offset mortgage for years, back in the days when you could borrow money once credit cards with no upfront fee. I borrowed thousands on a number of cards and put it in the offset account. It took regular managing but it meant I paid very little mortgage interest for a long time. If you do get one then you should look at what borrowing options are around, there are still some no upfront fee or no interest for a limited time offers around.

They are also good if you have a very irregular income as you can manage your cash flow without jumping through hoops all the time.