Offset mortgages- are they as good as they sound?

[Yorkiegirl]

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If it helps at all www.firstdirect.com do an offset mortgage calculator so you can input a few details and see if you'll be better off.

I'm a fan - they are bloody marvellous. We've got an RBS one had it for just under 2 years and have managed to shave £18K off our borrowing!! If we hadn't we wouldn't be able to move to the house we are moving to now.

It's so easy to have everything in one place, you can see your money go down all the time, if you have a tight month, you've usually got a buffer so you never worry about going overdrawn...

Perhaps the interest rates are a bit higher (not sure) but you it's calculated daily so you only pay interest on what you actually owe. We basically buy everything on our credit card (clearing it each month) so that our salaries stay in the account for longer. Also set up your bills to go out at the end of of the month rather than the beginning.

You have to be quite good with money I'd say, and not be tempted to eat into your facility each month but if you are good at keeping finances in check, they are great.

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Oh right, there are different types.

Ours is a 'current account mortgage' so everything is in one account. So you are basically always £xK 'overdrawn' if you like. This is advantageous to me because I'm self employed and because I don't earn any interest on my account/savings (because it's always negative!), I don't pay any tax on it either.

The other way is if you have your mortgage, savings, current account separate but the balance is still calculated in the same way - what you have is offset against what you owe and you pay interest on that.

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Oh right. I'm sure you can do that - but why not just have them all separate and offset against each other? OR all together?? Actually, RBS have changed theirs now so that you can't get the one we've got - like others, it now has to be separate accounts but offset rather than just in one account.

Ou can do that, but why not just use your savings to pay off a chunk of your mortgage - you should only really have 2 months salary in a ready access savings account (preferably ISA'd)

Offset mortages do charge higher rates than others, so unless you are going to use the flexibility to under and overpay regularly, or need to put in and take out large chunks, they really aren't worth it. Many "normal" mortgages offer a degree of flexibility at "normal" rates.

Why do you think you need one? What is it that you would actually use?

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Exactly Yorkiegirl - so with ours, we've effectively got savings of £18K but it's in with the mortgage so we only pay what we owe. BUT, if we need to access any of that money, it's just there.

So if you had a mortgage of 150K and you had savings of 25K you're account would be -125K but you'd have the facility to go up to -150K without seeking any permission, you can just take it out/spend it (if you wanted!).

Prufrock is right though and because I'm self employed, I have chunks of money going in every so often. DH also gets paid 13 times a year so every 4 weeks and so that helps too. Our aim is to chip our mortgage down and down and we are finding this is the best way to do it.

BUT, like Prufock says, you can just have a normal flexible mortgage where they allow you pay off a certain % of that each year so you could keep your savings separate until you wanted to use it to pay that chunk off.

SOrry, waffling!

Yorkie girl I'm with Skate on this. We have the Barclays/Woolwich one. You have up to 12 accounts linked so that at the end of the day all the credit and debit balances offset eachother, but they are kept as separate accounts. To get the full benefit I would move your current account too - although I've kept my old current account open with a £50-£100 balance just to keep it going.

With the 'Openplan' mortgage they value your house and then you can borrow upto 50% of the difference between the value of your house and the value of the mortgage. This is set up as a reserve account and basically gives you a pre-approved loan at the mortgage rate, which you can pay off like a normal loan (over a fixed year period) or add to the mortgage. This particularly appealed to us as we knew we would need a new car soon and liked the fact that we could get the loan straightaway and at a much better rate that normal loans would offer.

As Skate says interest is charged on a daily basis so provided you have some savings (which it sounds like you do) you wouldn't loose out. The Barclays/Woolwich web sites also have a programme you can run to see if you would benefit. HTH

Many "normal" mortages also charge interest on a daily basis.

I am not against offset mortgages, in fact we are probably going to have one ourselves when we finally buy somewhere - but that is specifically because dh gets a large bonus each year, and dividends throughout the year, which we will be dipping into regularly for building work (if we find the right house) and later for termly payment of school fees. But they are often sold as the latest thing to people who really would be better suited to a normal mortgage.

In your case yg if you need a mortagge of 150k, but have savings of 50k, you would be paying the offset mortgage rate of say 5.5% on 100,000. If you were instead to take out a normal mortgage of 100,000 at a discount rate (bestoffers are at 4.4% atm) you could save £1,100 a year. That would more than cover the arrangement fees for extra borrowing that would be charged if you did decide that you needed acces to your 50k savings, and ost lenders will arraneg extra borrowing very quickly (Natwest who are really v. crap managed it in 7 days for us - completely screwed up the ratesbut did do it v. quickly )