Offset Mortgages - thoughts?
Discussion
I've got a flat that I let out, I'm in the process of remortgaging to wipe out the debt I've incurred whilst studying over the last few years. Will be remortgaging for £55k. I'm planning to remortgage with the C&G and am trying to decide on the mortgage type. I was all set on their tracker mortgage at 0.64% above BOE base rate but have just been looking at their offset mortgage at 0.9% above BOE base rate which they reckon is an APR of 6.0% compared to an APR of 6.6% for the tracker.
There is no redemption penalty on either mortgage which is relevant as I may well sell the place in the next two years. Part of me thinks that I don't tend to have much money sat in either my lloyds current account or savings account day to day so is there any point in offsetting, but it does seem sensible to offset any funds that I may have in there against the mortgage and the quoted APR is lower although the rate seems to be higher
Does anyone have any experience of how these things actually work in practice. I'll be back into higher rate tax in September and the thought of not paying any tax on savings is quite appealing (actually the though of having savings again is appealing!).
Thanks in advance
>>> Edited by Piglet on Wednesday 16th February 21:11
There is no redemption penalty on either mortgage which is relevant as I may well sell the place in the next two years. Part of me thinks that I don't tend to have much money sat in either my lloyds current account or savings account day to day so is there any point in offsetting, but it does seem sensible to offset any funds that I may have in there against the mortgage and the quoted APR is lower although the rate seems to be higher
Does anyone have any experience of how these things actually work in practice. I'll be back into higher rate tax in September and the thought of not paying any tax on savings is quite appealing (actually the though of having savings again is appealing!).
Thanks in advance
>>> Edited by Piglet on Wednesday 16th February 21:11
I am currently in the process of changing to an offset mortgage with First Direct. From all the figures I've been shown, I cannot see a flaw anywhere. I'm on a standard variable rate, with an offset mortgage and loan (pay off all the credit cards etc too) and even if my credit balance stays at 0 for the whole month, for the whole life of the loans, I'll be paying it off 2 years early for the same amount of my current deal. With a credit balance, on average, not too disimilar to mine.....I will be paying off another 2 years early !
It's the way the Ausies have always done it....it looks like a good deal to me. !!
It's the way the Ausies have always done it....it looks like a good deal to me. !!
We've got an RB of S current account mortgage and we're really impressed because our savings also went into the account at the time.
The main advantages are that you're not paying tax on your savings, as they've effctively disappeared, plus you are paying more off the capital with each payment so your mortgage reduces far quicker.
Not sure if an offset mortgage has the same effect but we were very nervous at the start of this and we're really pleased just how quickly the mortgage is coming down.
Of course, when it reaches a nil balance, the savings still have to be built up again....
The main advantages are that you're not paying tax on your savings, as they've effctively disappeared, plus you are paying more off the capital with each payment so your mortgage reduces far quicker.
Not sure if an offset mortgage has the same effect but we were very nervous at the start of this and we're really pleased just how quickly the mortgage is coming down.
Of course, when it reaches a nil balance, the savings still have to be built up again....
Yep, these work well, as long as you have an element of discipline - you need to remember that the benefit of the offset can only work when you put money into the lead account. And the spare money you put in there effectively earns double the mortgage rate - you're cutting the amount of interest you pay, and not paying tax on any of it.
You could also look at a Virgin One account - had one of these for a while and they are great. No dicking around with understanding various pots of money that you can or can't touch - just one account with, in your case, a 55k overdraft. Have it paid off by the time your 60 or sell the house. But again, it needs discipline.
You could also look at a Virgin One account - had one of these for a while and they are great. No dicking around with understanding various pots of money that you can or can't touch - just one account with, in your case, a 55k overdraft. Have it paid off by the time your 60 or sell the house. But again, it needs discipline.
I've got a Virgin One account and it's great. It's been discussed in depth here, so do a search on Virgin One and you'll come up trumps.
Should you go with a Virgin One type account, then take heed of Kinkys Top Tip of the day ..... for every day you have money in your account you're paying off more.
Therefore, get a new credit card - preferably one with a cash-back scheme (even better) and put EVERYTHING on the card - food, petrol, etc, etc .... then pay it in full at the end of every month.
This way you are benefitting from all the money you would have paid out during the month. Should help to reduce your mortgage by a few months - just by doing that!
K
P.S. - If you do go for Virgin One - don't use their Visa credit card which you get automatically .... they take payments every week - not monthly - therefore little benefit in using it.
Should you go with a Virgin One type account, then take heed of Kinkys Top Tip of the day ..... for every day you have money in your account you're paying off more.
Therefore, get a new credit card - preferably one with a cash-back scheme (even better) and put EVERYTHING on the card - food, petrol, etc, etc .... then pay it in full at the end of every month.
This way you are benefitting from all the money you would have paid out during the month. Should help to reduce your mortgage by a few months - just by doing that!
K
P.S. - If you do go for Virgin One - don't use their Visa credit card which you get automatically .... they take payments every week - not monthly - therefore little benefit in using it.
I've got a Virgin One account and it's great. It's been discussed in depth here, so do a search on Virgin One and you'll come up trumps.
Should you go with a Virgin One type account, then take heed of Kinkys Top Tip of the day ..... for every day you have money in your account you're paying off more.
Therefore, get a new credit card - preferably one with a cash-back scheme (even better) and put EVERYTHING on the card - food, petrol, etc, etc .... then pay it in full at the end of every month.
This way you are benefitting from all the money you would have paid out during the month. Should help to reduce your mortgage by a few months - just by doing that!
K
P.S. - If you do go for Virgin One - don't use their Visa credit card which you get automatically .... they take payments every week - not monthly - therefore little benefit in using it.
Should you go with a Virgin One type account, then take heed of Kinkys Top Tip of the day ..... for every day you have money in your account you're paying off more.
Therefore, get a new credit card - preferably one with a cash-back scheme (even better) and put EVERYTHING on the card - food, petrol, etc, etc .... then pay it in full at the end of every month.
This way you are benefitting from all the money you would have paid out during the month. Should help to reduce your mortgage by a few months - just by doing that!
K
P.S. - If you do go for Virgin One - don't use their Visa credit card which you get automatically .... they take payments every week - not monthly - therefore little benefit in using it.
Thanks for the info, it was looking a little too good to be true and I wondered if it just might be....!
Good advice on the use of the credit card although after 6 years building up debt I was hoping to ditch the credit cards but will maybe have to use them with some discipline!
I'll have a look at the Virgin One account as well.
Thanks again
Piglet
Good advice on the use of the credit card although after 6 years building up debt I was hoping to ditch the credit cards but will maybe have to use them with some discipline!
I'll have a look at the Virgin One account as well.
Thanks again
Piglet
I've got the Woolwich version of the offset. Quite happy with it just now. It was quite a good deal a few years back at 0.5% above base rate.
I looked at the Virgin One account but didn't want to have all my accounts merged into one. The beauty of the Woolwich one, for me, is that all my accounts are still separate but linked to my mortgage for interest calculations.
I looked at the Virgin One account but didn't want to have all my accounts merged into one. The beauty of the Woolwich one, for me, is that all my accounts are still separate but linked to my mortgage for interest calculations.
dnb said:
The problem with the Virgin One account is deciding that you want a TVR, and handing over the cheque that day... 
Seriously, they're a great thing if you're disciplined with the finances.
Don't tempt me - I'm trying to get myself out of debt!
The Virgin One account appears to be out as it's a rental property. I've got the One account too - totally agree with the discipline bit etc.
Wanted to mention another nice way of using Credit Cards.
Certain CC allow you to have a 0% balance transfer that does not have to come from another CC - Mint, Egg, MBNA (so A&L, Virgin, MBNA etc.), Sainsbury's - these get termed super balance transfers.
System goes like this -
1. apply for (say Egg) card, when agreed transfer the max amount into your offset account - pay no interest to Egg, just minimum payment monthly (give them some of their money back!), get interest on their money from your offset
2. when interst free period nearing end, apply for a normal CC that only does 'proper' balance transfers (say Capital One) and close the Egg one - your minimum payment now goes to Capital One (give them some of their money back).
And so on...
Nice.
Wanted to mention another nice way of using Credit Cards.
Certain CC allow you to have a 0% balance transfer that does not have to come from another CC - Mint, Egg, MBNA (so A&L, Virgin, MBNA etc.), Sainsbury's - these get termed super balance transfers.
System goes like this -
1. apply for (say Egg) card, when agreed transfer the max amount into your offset account - pay no interest to Egg, just minimum payment monthly (give them some of their money back!), get interest on their money from your offset
2. when interst free period nearing end, apply for a normal CC that only does 'proper' balance transfers (say Capital One) and close the Egg one - your minimum payment now goes to Capital One (give them some of their money back).
And so on...
Nice.
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