Offset mortgages

[matt]

Discuss...

or :| or

 

[yo_chuci]

:-k

no idea... look good on paper. are they as affective now that the general interest rate has dropped..?
are you not better just overpaying all the time if pos.

 

[RogerS]

Matt

While savings rates are low it pays to keep all your money in one of these especially if you get largish lump sums/bonuses etc from time to time or money coming in. A good offset will calculate your interest on the outstanding amount on a daily basis and so, even if your salary is in for only a few days at the beginning of the month, then it will knock a bit more off your interest payments albeit small.

You then need willpower not to go out and spend back to your facility limit. I had a Virgin One account (still have although no longer tied to a mortgage) and it worked well.

But each person's financial situation is different...unless your name is F*** Goodwin, of course, in which case it's all rather academic.

 

[ste_5150]

I find moneysasvingexpert.com very good for these sorts of things. There are general guides to everything but the forum has more specific discussion.

 

[cambournepete]

Personally I don't think they are for everyone.
I like to keep my mortgage completely separate from everything else so I know exactly where I stand with it.
It might not be the most cost effective way, but having missed a couple of payments way back when the interest rate was 15% I like the separation.
Anyway, Nationwide doesn't do one and I like them

 

[StevieB]

[rant] Aye, I used to like Nationwide too. Then they jumped on the same bandwagon as everyone else and started charging arrangement fees in the region of £500 - £1000 for taking out a mortgage with them. WTF? I really resent paying almost a grand as an arrangement fee. Take a 2 year deal and thats like paying £500 a year for the privilege on top of the interest they charge. Makes comparison difficult and really disencourages short term mortgages to take advantage of short term rates. I guess this is the real reason, to tie you in for longer, but to me its an insidious fee for doing nothing of note.

[/rant]

Steve.

 

[BradNaylor]

[rant] Aye, I used to like Nationwide too. Then they jumped on the same bandwagon as everyone else and started charging arrangement fees in the region of £500 - £1000 for taking out a mortgage with them. WTF? I really resent paying almost a grand as an arrangement fee. Take a 2 year deal and thats like paying £500 a year for the privilege on top of the interest they charge. Makes comparison difficult and really disencourages short term mortgages to take advantage of short term rates. I guess this is the real reason, to tie you in for longer, but to me its an insidious fee for doing nothing of note.

[/rant]

Steve.

The arrangement fee is just a con so that they can publish a low headline interest rate. Add the fee to the payments you will make over the term of the mortgage and you will more than likely find that you might as well have been on the SVR.

As for offset mortgages, to me it all just seems to complicate a fairly simple matter. Apart from a little rainy day money, it makes no sense to have savings and a mortgage. The mortgage will always cost more than the interest earned on the savings, so it's better to pay the mortgage off quicker.

All these innovative products are devised and marketed by the banks for one reason only; to make bigger profits for themselves. It must therefore mean that they are more expensive overall to the consumer.

I prefer to stick with a bog standard repayment mortgage with my local building society and a small stash under my (metaphorical) mattress for easy access.

Cheers
Brad

 

[RogerS]

Have to disagree with you, Brad.

You actually save money with the offset mortgage. If you put your savings in the offset (say you stick in £5000 which you might get 2% saving interest on) then your outstanding mortgage (at say 4%) is reduced by £5000. So you are quids in. OK - only a few but you're still in 'profit'.

Roger

 

[BradNaylor]

Have to disagree with you, Brad.

You actually save money with the offset mortgage. If you put your savings in the offset (say you stick in £5000 which you might get 2% saving interest on) then your outstanding mortgage (at say 4%) is reduced by £5000. So you are quids in. OK - only a few but you're still in 'profit'.

Roger

So what's in it for the bank, Rog?

Sorry, I'm just very suspicious of the motives of these cockroaches...

Brad

 

[StevieB]

So what's in it for the bank

Well the bank keep all of your money instead of you having your savings elsewhere. The bank earn interest on investing your savings - more interest than they pay you or than they offset against your mortgage. The bank can try and charge you for the priveledge of you having a savings/current account with them. The bank will let you go overdrawn and charge you even more for the priveledge. The bank can try and sell you insurance of a number of types - mortgage protection, illness cover, travel insurance etc. The bank give you a borrowing buffer on the offset account so you may end up extending the mortgage term, hence borrowing more and paying more interest. The list goes on and on. Bottom line - they will always take more than they give and they want all the money you have. No bank offers current accounts for the benefit of their customers, they cost banks to run. What they really want is for you to borrow from them - they make most of their money from interest on loans, be it mortgages, commercial loans or bailing out the government of the day by buying bonds.

On an individual level, if you can stick to rigid repayments and ignore the 'extra borrowing' an offset mortgage provides then it can be a good bet. If you are tempted to borrow more or like to keep savings and mortgage seperate then they may not be for you. Just be aware that banks do not give stuff away for nothing - they are like the house in a casino and always have an edge overall.

Steve.