Mortgage fix

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Comments

  • rick_chasey
    rick_chasey Posts: 75,660
    edited May 2023
    Not gonna help but more ask - is an offset mortgage where the interest payments in your savings instead go to paying off the mortgage?
    _
  • TheBigBean
    TheBigBean Posts: 22,027
    surrey_commuter said:

    Just dusting this old lady off.

    With rates at 4-5% and the new tax thresholds for personal savings I am thinking of going for an offset mortgage and would appreciate feedback on whether I am doing the sums right.

    If my outstanding is £140k and have an offset rate of 5% if I have £14k in the acct dose that mean that my effective rate is 4.5%?

    I think you would pay 5% on £126k which is the same as 4.5% on £140k.

    Assuming you have maxed out premium bonds, ISAs etc. it would offer a good tax free rate of interest (for high earners). I have never really looked at it, but I assumed the mortgage rate would be higher than normal.

  • Stevo_666
    Stevo_666 Posts: 61,820
    edited May 2023
    rick_chasey said:

    Not gonna help but more ask - is an offset mortgage where the interest payments in your savings instead go to paying off the mortgage?

    Effectively that's it, but as mentioned above, technically it offsets the principal amounts and you pay interest on the net balance. Which can also be tax efficient.
    "I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]
  • rick_chasey
    rick_chasey Posts: 75,660
    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?
    _
  • TheBigBean
    TheBigBean Posts: 22,027
    rick_chasey said:

    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?

    That's the point of an offset mortgage. The real question is whether you could get a mortgage for 4.5% and then only get 2.5% on your savings.
  • TheBigBean
    TheBigBean Posts: 22,027
    I get 2.85% on my savings and pay 0.91% on my mortgage. Not something that is available all the time though.
  • Stevo_666
    Stevo_666 Posts: 61,820
    rick_chasey said:

    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?

    You're not getting interest on savings. The bank nets off the principal of what you owe with what's in your savings account and you pay the agreed rate on the net balance owed. Sure, the bank may set their mortgage interest rate to account for the fact that they would be better off without offering you an offset.
    "I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]
  • rick_chasey
    rick_chasey Posts: 75,660
    TheBigBean said:

    rick_chasey said:

    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?

    That's the point of an offset mortgage. The real question is whether you could get a mortgage for 4.5% and then only get 2.5% on your savings.
    Gotcha.

    Is not more efficient to just use the savings to pay off the mortgage?
    _
  • Stevo_666
    Stevo_666 Posts: 61,820
    Although it can be easy to lose sight of the fact that your biggest outlows are repayment of the principal amount rather than the interest.
    "I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]
  • TheBigBean
    TheBigBean Posts: 22,027
    rick_chasey said:

    TheBigBean said:

    rick_chasey said:

    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?

    That's the point of an offset mortgage. The real question is whether you could get a mortgage for 4.5% and then only get 2.5% on your savings.
    Gotcha.

    Is not more efficient to just use the savings to pay off the mortgage?
    Some people like to sit on cash as part of a rainy day fund.
  • rick_chasey
    rick_chasey Posts: 75,660
    TheBigBean said:

    rick_chasey said:

    TheBigBean said:

    rick_chasey said:

    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?

    That's the point of an offset mortgage. The real question is whether you could get a mortgage for 4.5% and then only get 2.5% on your savings.
    Gotcha.

    Is not more efficient to just use the savings to pay off the mortgage?
    Some people like to sit on cash as part of a rainy day fund.
    So the idea is if you then spend your savings, the mortgage rate goes up to compensate?
    _
  • TheBigBean
    TheBigBean Posts: 22,027
    rick_chasey said:

    TheBigBean said:

    rick_chasey said:

    TheBigBean said:

    rick_chasey said:

    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?

    That's the point of an offset mortgage. The real question is whether you could get a mortgage for 4.5% and then only get 2.5% on your savings.
    Gotcha.

    Is not more efficient to just use the savings to pay off the mortgage?
    Some people like to sit on cash as part of a rainy day fund.
    So the idea is if you then spend your savings, the mortgage rate goes up to compensate?
    The amount on which you pay interest goes up. Or, put another way, your net debt increases.
  • Stevo_666
    Stevo_666 Posts: 61,820
    TheBigBean said:

    rick_chasey said:

    TheBigBean said:

    rick_chasey said:

    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?

    That's the point of an offset mortgage. The real question is whether you could get a mortgage for 4.5% and then only get 2.5% on your savings.
    Gotcha.

    Is not more efficient to just use the savings to pay off the mortgage?
    Some people like to sit on cash as part of a rainy day fund.
    Yep. Especially where the mortgage isn't flexible in terms of letting you increase your borrowing back up to a certain level or to redraw previous overpayments.
    "I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]
  • rick_chasey
    rick_chasey Posts: 75,660
    edited May 2023
    Stevo_666 said:

    TheBigBean said:

    rick_chasey said:

    TheBigBean said:

    rick_chasey said:

    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?

    That's the point of an offset mortgage. The real question is whether you could get a mortgage for 4.5% and then only get 2.5% on your savings.
    Gotcha.

    Is not more efficient to just use the savings to pay off the mortgage?
    Some people like to sit on cash as part of a rainy day fund.
    Yep. Especially where the mortgage isn't flexible in terms of letting you increase your borrowing back up to a certain level or to redraw previous overpayments.
    Ah gotcha.

    For mine, you can overpay a certain amount and if you start missing them, as long as you're ahead of the bare minimum for that point in the schedule you're all good.

    So in a good year I can overpay double what I'd have paid over 12 months and then if things go wrong I can not pay it for a year before I get into trouble.
    _
  • Stevo_666
    Stevo_666 Posts: 61,820
    rick_chasey said:

    Stevo_666 said:

    TheBigBean said:

    rick_chasey said:

    TheBigBean said:

    rick_chasey said:

    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?

    That's the point of an offset mortgage. The real question is whether you could get a mortgage for 4.5% and then only get 2.5% on your savings.
    Gotcha.

    Is not more efficient to just use the savings to pay off the mortgage?
    Some people like to sit on cash as part of a rainy day fund.
    Yep. Especially where the mortgage isn't flexible in terms of letting you increase your borrowing back up to a certain level or to redraw previous overpayments.
    Ah gotcha.

    For mine, you can overpay a certain amount and if you start missing them, as long as you're ahead of the bare minimum for that point in the schedule you're all good.

    So in a good year I can overpay double what I'd have paid over 12 months and then if things go wrong I can not pay it for a year before I get into trouble.
    Sensible strategy.

    I can overpay as much as I want but can't redraw it (without effectively reapplying for another mortgage). So I keep a rainy day fund while overpaying as much as possible. Aim is to get shot of it as soon as possible using earned income/without liquidating investments.
    "I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]
  • rick_chasey
    rick_chasey Posts: 75,660
    edited May 2023
    Stevo_666 said:

    rick_chasey said:

    Stevo_666 said:

    TheBigBean said:

    rick_chasey said:

    TheBigBean said:

    rick_chasey said:

    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?

    That's the point of an offset mortgage. The real question is whether you could get a mortgage for 4.5% and then only get 2.5% on your savings.
    Gotcha.

    Is not more efficient to just use the savings to pay off the mortgage?
    Some people like to sit on cash as part of a rainy day fund.
    Yep. Especially where the mortgage isn't flexible in terms of letting you increase your borrowing back up to a certain level or to redraw previous overpayments.
    Ah gotcha.

    For mine, you can overpay a certain amount and if you start missing them, as long as you're ahead of the bare minimum for that point in the schedule you're all good.

    So in a good year I can overpay double what I'd have paid over 12 months and then if things go wrong I can not pay it for a year before I get into trouble.
    Sensible strategy.

    I can overpay as much as I want but can't redraw it (without effectively reapplying for another mortgage). So I keep a rainy day fund while overpaying as much as possible. Aim is to get shot of it as soon as possible using earned income/without liquidating investments.
    Makes sense.

    We're limited to 10% of remaining loan, but given the valuations and what we needed to borrow that's only really a material concern in 5-10 years time and presumably by then we'll have moved house and got a different mortgage anyway.

    I'm doing alright but it's pretty unlikely I'll be dropping £40k+ on the mortage any time soon.
    _
  • Stevo_666
    Stevo_666 Posts: 61,820
    rick_chasey said:

    Stevo_666 said:

    rick_chasey said:

    Stevo_666 said:

    TheBigBean said:

    rick_chasey said:

    TheBigBean said:

    rick_chasey said:

    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?

    That's the point of an offset mortgage. The real question is whether you could get a mortgage for 4.5% and then only get 2.5% on your savings.
    Gotcha.

    Is not more efficient to just use the savings to pay off the mortgage?
    Some people like to sit on cash as part of a rainy day fund.
    Yep. Especially where the mortgage isn't flexible in terms of letting you increase your borrowing back up to a certain level or to redraw previous overpayments.
    Ah gotcha.

    For mine, you can overpay a certain amount and if you start missing them, as long as you're ahead of the bare minimum for that point in the schedule you're all good.

    So in a good year I can overpay double what I'd have paid over 12 months and then if things go wrong I can not pay it for a year before I get into trouble.
    Sensible strategy.

    I can overpay as much as I want but can't redraw it (without effectively reapplying for another mortgage). So I keep a rainy day fund while overpaying as much as possible. Aim is to get shot of it as soon as possible using earned income/without liquidating investments.
    Makes sense.

    We're limited to 10% of remaining loan, but given the valuations and what we needed to borrow that's only really a material concern in 5-10 years time and presumably by then we'll have moved house and got a different mortgage anyway.

    I'm doing alright but it's pretty unlikely I'll be dropping £40k+ on the mortage any time soon.
    Horses for courses. Once I'm shot of this I'm home and hosed and my next home will either be a downsize job or have the word 'care' in it. Not a fan of personal borrowing but it made more sense for a number of reasons and its not a big one so should be gone in a few years.
    "I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]
  • morstar
    morstar Posts: 6,190
    rick_chasey said:

    Stevo_666 said:

    rick_chasey said:

    Stevo_666 said:

    TheBigBean said:

    rick_chasey said:

    TheBigBean said:

    rick_chasey said:

    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?

    That's the point of an offset mortgage. The real question is whether you could get a mortgage for 4.5% and then only get 2.5% on your savings.
    Gotcha.

    Is not more efficient to just use the savings to pay off the mortgage?
    Some people like to sit on cash as part of a rainy day fund.
    Yep. Especially where the mortgage isn't flexible in terms of letting you increase your borrowing back up to a certain level or to redraw previous overpayments.
    Ah gotcha.

    For mine, you can overpay a certain amount and if you start missing them, as long as you're ahead of the bare minimum for that point in the schedule you're all good.

    So in a good year I can overpay double what I'd have paid over 12 months and then if things go wrong I can not pay it for a year before I get into trouble.
    Sensible strategy.

    I can overpay as much as I want but can't redraw it (without effectively reapplying for another mortgage). So I keep a rainy day fund while overpaying as much as possible. Aim is to get shot of it as soon as possible using earned income/without liquidating investments.
    Makes sense.

    We're limited to 10% of remaining loan, but given the valuations and what we needed to borrow that's only really a material concern in 5-10 years time and presumably by then we'll have moved house and got a different mortgage anyway.

    I'm doing alright but it's pretty unlikely I'll be dropping £40k+ on the mortage any time soon.
    I thought my max overpayment was 10% of remaining loan but it isn’t, it’s 10% max of the value of the loan at the start of the deal.

    That allows you to make quite a significant dent if you are in a position to overpay. That’s half your loan for a 5 year deal on top of your regular payments.
  • shirley_basso
    shirley_basso Posts: 6,195
    I thought it didn't sound right. We are 10% of the opening value, but I am overpaying 5% p.a at present with monthly instalments. Still takes 5y of the total term due to interest savings (at today's rates).

    I am up for renewal next March. Going to get rogered.
  • rick_chasey
    rick_chasey Posts: 75,660
    morstar said:

    rick_chasey said:

    Stevo_666 said:

    rick_chasey said:

    Stevo_666 said:

    TheBigBean said:

    rick_chasey said:

    TheBigBean said:

    rick_chasey said:

    Surely there is a gap in interest rates between the mortgage rate and the savings rate?

    I doubt if your new mortgage is 5% that you'll get 5% on your savings too?

    That's the point of an offset mortgage. The real question is whether you could get a mortgage for 4.5% and then only get 2.5% on your savings.
    Gotcha.

    Is not more efficient to just use the savings to pay off the mortgage?
    Some people like to sit on cash as part of a rainy day fund.
    Yep. Especially where the mortgage isn't flexible in terms of letting you increase your borrowing back up to a certain level or to redraw previous overpayments.
    Ah gotcha.

    For mine, you can overpay a certain amount and if you start missing them, as long as you're ahead of the bare minimum for that point in the schedule you're all good.

    So in a good year I can overpay double what I'd have paid over 12 months and then if things go wrong I can not pay it for a year before I get into trouble.
    Sensible strategy.

    I can overpay as much as I want but can't redraw it (without effectively reapplying for another mortgage). So I keep a rainy day fund while overpaying as much as possible. Aim is to get shot of it as soon as possible using earned income/without liquidating investments.
    Makes sense.

    We're limited to 10% of remaining loan, but given the valuations and what we needed to borrow that's only really a material concern in 5-10 years time and presumably by then we'll have moved house and got a different mortgage anyway.

    I'm doing alright but it's pretty unlikely I'll be dropping £40k+ on the mortage any time soon.
    I thought my max overpayment was 10% of remaining loan but it isn’t, it’s 10% max of the value of the loan at the start of the deal.

    That allows you to make quite a significant dent if you are in a position to overpay. That’s half your loan for a 5 year deal on top of your regular payments.
    Nah I checked it, the overpayment allowance shrinks, alas.
    _
  • surrey_commuter
    surrey_commuter Posts: 18,867
    This overpaying thing is why I am considering offset as it has the same effect as overpaying but you can get your money back if you want to.

    Alternative is of course to get a mortgage with flexibility.

    Or sell a lot of shares and pay it off but even at 4% I think I can make more leaving it invested.

    Might just do my new favourite decision of 50/50
  • TheBigBean
    TheBigBean Posts: 22,027
    surrey_commuter said:

    This overpaying thing is why I am considering offset as it has the same effect as overpaying but you can get your money back if you want to.

    Alternative is of course to get a mortgage with flexibility.

    Or sell a lot of shares and pay it off but even at 4% I think I can make more leaving it invested.

    Might just do my new favourite decision of 50/50

    Tracker and be happy about rate cuts?
  • surrey_commuter
    surrey_commuter Posts: 18,867
    TheBigBean said:

    surrey_commuter said:

    This overpaying thing is why I am considering offset as it has the same effect as overpaying but you can get your money back if you want to.

    Alternative is of course to get a mortgage with flexibility.

    Or sell a lot of shares and pay it off but even at 4% I think I can make more leaving it invested.

    Might just do my new favourite decision of 50/50

    Tracker and be happy about rate cuts?
    Am thinking 5 year deal and can not see rates going anywhere for a couple of years and then falling slowly.

    A cursory glance suggested most were 2 years

  • pblakeney
    pblakeney Posts: 27,495
    Way back when I had a mortgage at higher rates than today but falling. Every time there was a rate cut I kept the payments the same and reduced the term. Anecdotal, not advice. 😉
    The above may be fact, or fiction, I may be serious, I may be jesting.
    I am not sure. You have no chance.
    Veronese68 wrote:
    PB is the most sensible person on here.
  • surrey_commuter
    surrey_commuter Posts: 18,867
    surrey_commuter said:

    TheBigBean said:

    surrey_commuter said:

    This overpaying thing is why I am considering offset as it has the same effect as overpaying but you can get your money back if you want to.

    Alternative is of course to get a mortgage with flexibility.

    Or sell a lot of shares and pay it off but even at 4% I think I can make more leaving it invested.

    Might just do my new favourite decision of 50/50

    Tracker and be happy about rate cuts?
    Am thinking 5 year deal and can not see rates going anywhere for a couple of years and then falling slowly.

    A cursory glance suggested most were 2 years

    well after the last inflation figures the yield curve jumped (which is what lenders use to price their fixed deals) and I kicked myself for not having done something before the inevitable pulling of current deals.

    Anyway as a tip for others I am with Barclays and I managed to reserve a fixed deal in about 15 mins (including downloading the app)
  • rick_chasey
    rick_chasey Posts: 75,660
    surrey_commuter said:

    surrey_commuter said:

    TheBigBean said:

    surrey_commuter said:

    This overpaying thing is why I am considering offset as it has the same effect as overpaying but you can get your money back if you want to.

    Alternative is of course to get a mortgage with flexibility.

    Or sell a lot of shares and pay it off but even at 4% I think I can make more leaving it invested.

    Might just do my new favourite decision of 50/50

    Tracker and be happy about rate cuts?
    Am thinking 5 year deal and can not see rates going anywhere for a couple of years and then falling slowly.

    A cursory glance suggested most were 2 years

    well after the last inflation figures the yield curve jumped (which is what lenders use to price their fixed deals) and I kicked myself for not having done something before the inevitable pulling of current deals.

    Anyway as a tip for others I am with Barclays and I managed to reserve a fixed deal in about 15 mins (including downloading the app)
    Where's the current curve for 2 year's time?
    _
  • surrey_commuter
    surrey_commuter Posts: 18,867
    rick_chasey said:

    surrey_commuter said:

    surrey_commuter said:

    TheBigBean said:

    surrey_commuter said:

    This overpaying thing is why I am considering offset as it has the same effect as overpaying but you can get your money back if you want to.

    Alternative is of course to get a mortgage with flexibility.

    Or sell a lot of shares and pay it off but even at 4% I think I can make more leaving it invested.

    Might just do my new favourite decision of 50/50

    Tracker and be happy about rate cuts?
    Am thinking 5 year deal and can not see rates going anywhere for a couple of years and then falling slowly.

    A cursory glance suggested most were 2 years

    well after the last inflation figures the yield curve jumped (which is what lenders use to price their fixed deals) and I kicked myself for not having done something before the inevitable pulling of current deals.

    Anyway as a tip for others I am with Barclays and I managed to reserve a fixed deal in about 15 mins (including downloading the app)
    Where's the current curve for 2 year's time?
    Higher than it is that in 5 years
  • rick_chasey
    rick_chasey Posts: 75,660
    Well yeah
    _
  • surrey_commuter
    surrey_commuter Posts: 18,867
    rick_chasey said:

    Well yeah

    My answer was politer than “Google is your friend”
  • morstar
    morstar Posts: 6,190
    So, as OP, thought I’d update that the fix is in.

    Took many factors into consideration and got the timing wrong but have an acceptable deal.

    Intention is to have a tiny balance left by the end of the deal so interest can be whatever it wants to be by then.

    £64 per month worse off will hopefully be countered by lowering energy prices.

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