£75k for 0% interest at a one off cost for £2k?
Discussion
I’ve got an offset mortgage, I could get a further advance at the same rate I’m currently paying, i won’t go into the details but I can get upto £150k, £75k I’m taking anyway which has no fees, it’s the additional £75 which will cost £2k. I will have to pay it back monthly like any other loan but because the funds sit in the linked saving account and the mortgage and saving account are balanced the interest rate is zero. In essence the £2k gives instant access to £150k, no fee option gives access to £75k.
Hence not free and not man down the pub who may turn. It’s kind of a free equity release to the term of the mortgage, i actually don’t need it (yet) but I have the opportunity to get it now while I’m re juggling my finances, I could do a few keyboard strokes and pay off the mortgage and be mortgage free, however id rather keep the funds in the saving account then pay the bank and never be able to get it back cheaply, LTV will drop on paper to about 25% if I take all the £150k but in practice it stays the same as I have that money in the savings account.
Hence not free and not man down the pub who may turn. It’s kind of a free equity release to the term of the mortgage, i actually don’t need it (yet) but I have the opportunity to get it now while I’m re juggling my finances, I could do a few keyboard strokes and pay off the mortgage and be mortgage free, however id rather keep the funds in the saving account then pay the bank and never be able to get it back cheaply, LTV will drop on paper to about 25% if I take all the £150k but in practice it stays the same as I have that money in the savings account.
Casa1862 said:
I’ve got an offset mortgage, I could get a further advance at the same rate I’m currently paying, i won’t go into the details but I can get upto £150k, £75k I’m taking anyway which has no fees, it’s the additional £75 which will cost £2k. I will have to pay it back monthly like any other loan but because the funds sit in the linked saving account and the mortgage and saving account are balanced the interest rate is zero. In essence the £2k gives instant access to £150k, no fee option gives access to £75k.
Hence not free and not man down the pub who may turn. It’s kind of a free equity release to the term of the mortgage, i actually don’t need it (yet) but I have the opportunity to get it now while I’m re juggling my finances, I could do a few keyboard strokes and pay off the mortgage and be mortgage free, however id rather keep the funds in the saving account then pay the bank and never be able to get it back cheaply, LTV will drop on paper to about 25% if I take all the £150k but in practice it stays the same as I have that money in the savings account.
But as soon as you spend the money from your savings account you will pay interest, no?Hence not free and not man down the pub who may turn. It’s kind of a free equity release to the term of the mortgage, i actually don’t need it (yet) but I have the opportunity to get it now while I’m re juggling my finances, I could do a few keyboard strokes and pay off the mortgage and be mortgage free, however id rather keep the funds in the saving account then pay the bank and never be able to get it back cheaply, LTV will drop on paper to about 25% if I take all the £150k but in practice it stays the same as I have that money in the savings account.
Casa1862 said:
I’ve got an offset mortgage, I could get a further advance at the same rate I’m currently paying, i won’t go into the details but I can get upto £150k, £75k I’m taking anyway which has no fees, it’s the additional £75 which will cost £2k. I will have to pay it back monthly like any other loan but because the funds sit in the linked saving account and the mortgage and saving account are balanced the interest rate is zero. In essence the £2k gives instant access to £150k, no fee option gives access to £75k.
Hence not free and not man down the pub who may turn. It’s kind of a free equity release to the term of the mortgage, i actually don’t need it (yet) but I have the opportunity to get it now while I’m re juggling my finances, I could do a few keyboard strokes and pay off the mortgage and be mortgage free, however id rather keep the funds in the saving account then pay the bank and never be able to get it back cheaply, LTV will drop on paper to about 25% if I take all the £150k but in practice it stays the same as I have that money in the savings account.
So you are effectively describing an insurance policy, which will give you swift access to money without going through any additional approval processes.Hence not free and not man down the pub who may turn. It’s kind of a free equity release to the term of the mortgage, i actually don’t need it (yet) but I have the opportunity to get it now while I’m re juggling my finances, I could do a few keyboard strokes and pay off the mortgage and be mortgage free, however id rather keep the funds in the saving account then pay the bank and never be able to get it back cheaply, LTV will drop on paper to about 25% if I take all the £150k but in practice it stays the same as I have that money in the savings account.
I had a similar situation about 10 years ago - I'd overpaid by mortgage to reduce the balance down to a few hundred pounds. I paid a relatively small fee to extend the mortgage term, so I could access the overpaid money back if needed. As it happened, I did need to access to the money to support my business at the time - and with one phone call, I had the money back in my account within 4 days, without going through any approval process. It definitely eased what could have been very stressful situation at the time.
One of the problems, as you know being self employed, if things get a bit sticky in your business, borrowing large amounts of additional money quickly can be tricky and time-consuming.
To work out if this insurance is worthwhile in your situation, you can try and estimate the probabilities. I've picked sample figures but you can substitute your own figures based on your circumstances. Let's assume you might need £50k of the offset amount and there is a 50% chance you think it might be necessary over the period of the mortgage term. Let's say if you do need it you might need only need it for 12 months. If you were trying to borrow the money when things weren't good, let's say you would be required to pay an interest rate of 8% but you might also need to pay an arrangement fee and possibly early repayment fee. With these figures the insurance policy would probably make sense.
Another factor is your ability to raise the money in other ways e.g. selling shares, other assets, could a partner borrowing the money etc.
And then you have to add some factor in for the stress - if you don't have your own buffer of money to help you deal with the bumps in the road, you might think this arrangement fee is worth it to prevent small bumps becoming mountains.
EddieSteadyGo said:
So you are effectively describing an insurance policy, which will give you swift access to money without going through any additional approval processes.
I had a similar situation about 10 years ago - I'd overpaid by mortgage to reduce the balance down to a few hundred pounds. I paid a relatively small fee to extend the mortgage term, so I could access the overpaid money back if needed. As it happened, I did need to access to the money to support my business at the time - and with one phone call, I had the money back in my account within 4 days, without going through any approval process. It definitely eased what could have been very stressful situation at the time.
One of the problems, as you know being self employed, if things get a bit sticky in your business, borrowing large amounts of additional money quickly can be tricky and time-consuming.
To work out if this insurance is worthwhile in your situation, you can try and estimate the probabilities. I've picked sample figures but you can substitute your own figures based on your circumstances. Let's assume you might need £50k of the offset amount and there is a 50% chance you think it might be necessary over the period of the mortgage term. Let's say if you do need it you might need only need it for 12 months. If you were trying to borrow the money when things weren't good, let's say you would be required to pay an interest rate of 8% but you might also need to pay an arrangement fee and possibly early repayment fee. With these figures the insurance policy would probably make sense.
Another factor is your ability to raise the money in other ways e.g. selling shares, other assets, could a partner borrowing the money etc.
And then you have to add some factor in for the stress - if you don't have your own buffer of money to help you deal with the bumps in the road, you might think this arrangement fee is worth it to prevent small bumps becoming mountains.
Thanks for the detailed reply and to everyone else, yes I suppose it is an insurance policy, borrowing is cheap now and they are willing to lend me the money, if times get tough then no point having a £600k house paid for and struggling to pay your bills. If things were to take a turn then trying to get £150k certainly won’t be a single phone call. £2k over 17 years will cost under £10 per month, with inflation biting into that it’s a small price to pay for the security, but I do appreciate the other poster saying I’m just buying the ability to borrow at 2%.I had a similar situation about 10 years ago - I'd overpaid by mortgage to reduce the balance down to a few hundred pounds. I paid a relatively small fee to extend the mortgage term, so I could access the overpaid money back if needed. As it happened, I did need to access to the money to support my business at the time - and with one phone call, I had the money back in my account within 4 days, without going through any approval process. It definitely eased what could have been very stressful situation at the time.
One of the problems, as you know being self employed, if things get a bit sticky in your business, borrowing large amounts of additional money quickly can be tricky and time-consuming.
To work out if this insurance is worthwhile in your situation, you can try and estimate the probabilities. I've picked sample figures but you can substitute your own figures based on your circumstances. Let's assume you might need £50k of the offset amount and there is a 50% chance you think it might be necessary over the period of the mortgage term. Let's say if you do need it you might need only need it for 12 months. If you were trying to borrow the money when things weren't good, let's say you would be required to pay an interest rate of 8% but you might also need to pay an arrangement fee and possibly early repayment fee. With these figures the insurance policy would probably make sense.
Another factor is your ability to raise the money in other ways e.g. selling shares, other assets, could a partner borrowing the money etc.
And then you have to add some factor in for the stress - if you don't have your own buffer of money to help you deal with the bumps in the road, you might think this arrangement fee is worth it to prevent small bumps becoming mountains.
I do have BTL in the background, my thinking is that should house prices take a turn downwards I could use the funds to prop up the LTV’s on them back up to 75% which is the figure most lenders want, they are currently all over 75% but things could turn. Also, if I come across a property I want to buy quickly I can use the offset money to buy cash and then worry about remortgage it. Having ready cash does have other advantages then being able to invest it (which no one is stopping you from doing) you just need to make sure it beats 2%.
One thing you have to know about banks is they give you a brolly when it is sunny and they look to take it away when it is raining. Did exactly the same as you are looking to do, with Northern Rock (eventually morphed into Virgin), but they changed the rules and stopped us getting the money back as it wasn't a true bank account mortgage, so scour the small print and seek reassurance they won't pull the rug from under your feet and change.the rules.
You'll not have the full amount available over the 17 years as the amount reduces every year. We are Six or so years into a 10 year fix offset account mortgage and the piece of mind of having more or less instant access to the savings side of things for a rainy day fund have stopped a lot of sleepless nights. Last year that piece of mind cost us £193 in interest, we may well have been able to get a.lower rate than 4.09%, but other than the odd credit card transfer all other loan vehicles are more expensive than that especially if you are.self employed.
Cashflow is King, helps cushion late payment and customers going to the wall, £2k is a cheap safety net from going bankrupt through lack of means to pay a bill or miss an opportunity to get a bargain that helps you expand, puts you in a better bargaining power with bankers as.well.
You'll not have the full amount available over the 17 years as the amount reduces every year. We are Six or so years into a 10 year fix offset account mortgage and the piece of mind of having more or less instant access to the savings side of things for a rainy day fund have stopped a lot of sleepless nights. Last year that piece of mind cost us £193 in interest, we may well have been able to get a.lower rate than 4.09%, but other than the odd credit card transfer all other loan vehicles are more expensive than that especially if you are.self employed.
Cashflow is King, helps cushion late payment and customers going to the wall, £2k is a cheap safety net from going bankrupt through lack of means to pay a bill or miss an opportunity to get a bargain that helps you expand, puts you in a better bargaining power with bankers as.well.
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