Offset mortgages. Is there any point?

[OrmRenewed]

Aren't they just variable rate mortgages with a few extras?

Anyone care to enlighten me please?

If you have significant savings then yes, offsets are good.

You don't pay interest on the amount equivalent to your savings. So say you have £100k mortgage and 20k savings, you're only paying mortgage interest on 80k. The saving you make on that is often waaaay higher than any interst you'd get on the savings in an ISA or whatever. Especially at the moment.

Not worth it if you have low/no savings though. Just the offset from your current account isn't much, and the interest rates aren't normally 'best buy'

Ok thanks ribena. We have 0 savings atm But we will be expecting a small lump sum in a few years time. I just asked the lady at the bank and variable rate mortgages as that is what we currently have and she suggested this. The other option is a tracker apparently.

So would I be better off with a tracker. I don't fancy fixed rate as it always seems such a shock when it ends and I can't face the thought of rearranging it every few years.

God I am a old fart - we've had a variable rate for 20yrs and only moved once. Apart from that I've not touched it.

You only reap the benefits if you have a lot of savings. My DH is a frantic, panicky saver so it's dropped our mortgage payments to only £150pm.

Some offset mortgage providers allow the savings pot to be from someone else - so a relative could have lots of savings and offset your mortgage against that.
The relative would lose the interest they would have got if their savings were elsewhere (not a great hardship at the moment given the poor savings interest rates) whilst you benefit from the lower mortgage payments.

I'd like an offset mortgage, may look into it more when my current deal is nearing it's end. I have some savings which I don't want to use to pay off part of the mortgage, as I may need the money... but given the low interest rate I get, would be good to get a lower mortgage rate, instead of the low savings interest.

Ours has been a lifesaver!

We have a fixed rate, and when we overpay there are no penalties. When DH was unemployed (two eeparate occassions) we paid minimal interest only (if that some months) with no fuss.

Redundancy money was kept separate but reduced the bill.

Your "savings" are in effect earning the Mortgage rate which is always higher than a savings rate.

Your current account is offset, so even for those few days between getting paid & spending it, the interest is offset.

We moved to this property in 1999, took out a 20 year loan and we could almost repay it now by moving all last savings into the actual mortgage account, but we want to keep those funds liquid, so keep the account open and interest in presently around £10 pm!!!

Even offfsetting the current accounts alone can make a difference. If you can get a decent rate then I would recommend.

I'm not a financial advisor so not sure what would be best... but from what you've said you might suit something like a lifetime tracker. Instead of running for two years or whatever you get the tracker for the life of the mortgage, so you only have to change it when you feel like it. You don't automatically get to the end of, say, two years and have a big jump to the standard variable rate.

Thanks everyone.

milliways - that sounds more positive. The rate was 3.75%.

I quite enjoyed my visit to the bank. The mortgage advisor was terribly nice about our credit history and admired the healthy way we maintained our balances My financial halo is quietly gleaming!

OK ribena. That sounds good. It was just a preliminary meeting to see what they would lend and what it would cost. So plenty of time to decide - have to see if DH's post is renewed first

I have an offset mortgage and it does make a difference even with just your current account.

We have an offset, and it works for us, but it's usually only worth it if you have a significant amount of savings and are both higher rate tax payers (so if you put the cash in savings account you would pay 40% tax on the interest, so by putting it against your mortgage - which normally has a high rate than savings - you gain, even if the savings and mortgage rate are the same).

I have an offset and it makes a real difference. We offset the savings for holidays/ big purchases/ emergencies etc and it makes a significant dent in the mortgage interest. Also, it helps that we're with first direct who usually offer a tracker mortgage at 1% above base rate (I heart First direct!).

We got it when I was self employed as a barrister and would need to save for tax bills and chambers expenses. Meant that all that saving effectively earned interest at the standard mortgage rate and was tax free.

We have an offset - DH is self-employed so lots of money coming in and going out quite soon after, but even a few days saves us those pennies! He also has to save up each year for tax bills, and instead of paying interest on that its offset. We have 2 accounts that are included in our offset which we have decided are for our kids money - still in our names, saving money for them but not taxable. Ours is with woolwich (barclays) and we can have up to 12 accounts offsetting including ISAs. That means we can keep our ISA allowance each year, not earn interest but if we stopped having an offset in future the ISA would continue to be tax free IYSWIM.
We don't have that much in savings but I ove the fact that every month I can see how much we have saved. You can also use credit cards to pay for stuff, which means that your money stays in your account longer, offsetting for longer (although obviously only worth doing if you pay it off in full every month!). That only saves a few pence each day, but it all adds up!