Hi guys
Anyone got any experience of offset mortgages, pros, cons etc, specifically relating to natwest or first direct?
My fixed rate ended a year ago and i'm sat on the Natwest SVR of 4%, i've look a few times at new fixed rate deals, but with the product fees, valuation fees and so on, it's never seemed worth moving, even within natwest.
Due to an inheritance, i have a bit of a lump sum i was wanting to use to overpay my mortgage plus i am also in a position to make regular monthly overpayments. Overpaying on natwest doesn't seem straight forward so went in to talk to someone and they suggested i change to an offset mortgage so i get the benefit of overpaying, but can also get at the lump sum if i ever needed to.
Seems to make sense and i've done a bit of reading and can't see any down side, or is there? My options seem to be to stay with natwest on their offset at 4%, the same as their SVR with a £500 product fee, or jump ship to someone else, most likely first direct whos rate is 3.7%, also with a £500 product fee, saving me £17 a month but having to pay £150 valuation fee plus having the possibility of getting turned down, hassle of remortgaging, valuation etc.
Any views peeps?
I have the 'Virgin One Account' and it pretty much acts in the same way as an overdraft and is calculated on a daily basis. So its great if you have a big bag of cash to throw in to reduce the overdraft. Only downside is you can easily overspend as its all in one account so you have to manage your money and make sure you are personally reducing the debt rather than increasing it.
I have had a first direct offset mortgage for about 8 years and for me it has worked wonderfully well.
I have my current account and a savings account linked to it. In the first few years I funnelled every penny through one or other of these accounts and left it there as long as possible which reduced the interest payable for the month and meant a lot more capital was being paid off with every monthly payment.
Eventually it got to the point where I had enough to balance the mortgage and was not paying any interest. For the last few years, my monthly payments have been paying off the capital and I haven't paid any interest. It's also nice to know I have a guaranteed source of money, with a relatively cheap rate of interest, if I ever need a fast loan.
A number of key questions:
1) How much worse is the interest rate than you could get on an alternative mortgage? ie how much are you paying for this 'benefit'?
2) What else could you do with the money? If it's going to sit in cash you might as well go for the offset as you'll effectively be getting your interest tax free (and probably on a higher interest rate). However, other investments are available...
3) How much liquidity do you require?
I've had an offset for the last 5 years and have overpaid while interest rates are low. Seems like a pretty good idea if you can get the right deal.
We've had a First Direct (FD) offset mortgage for a few years now and would highly recommend it. At the time of taking it out the rate was as good as anywhere else / other products etc and so there were no downsides as far as I can tell. The other positive factors were the tiny (by comparison) fees for set up, exit and transfer (if you decided to leave or switch products).
We have all of our other FD accounts (3 current and 2 savings) linked to the mortgage offset so never have to worry about maximising the impact. The amount of interest we pay keeps coming down as the offset "pot" increases, steadily building up savings/capital. The only downside I can see is that if you intend to use the savings to pay off your mortgage then you need to be strict about not dipping into it (e.g. for expensive watches!). You just have to view it as the capital portion of what you would normally pay on a repayment and forget its there!
Customer service from FD on both the banking and mortgage side has been superb, no complaints whatsoever. Highly recommended!
The only downside is that you should be able to get a much better % on a 2-5 year fix at the mo and still be able to overpay 10% / year. Depending on your LTV amount you could be getting 2.5 or less, fix rates are great if you've got 40% or over.
I had an offset before and it was great - the best part was that it really encouraged you to pay off the mortgage, as you could always overpay and not have to worry, you could get it back if you really needed it. But of course you tend to leave it as it feels good to see your payments instantly getting smaller. Recommended for that, but obviously do the maths, in my case other products were cheaper in the short / medium term, which is a pity. An offset seems better given a higher savings amount to actually offset, then it's very handy.
On the natwest offset remember that you can only link 1 current account and 3 savings accounts (from memory) and they have to be particular types of account
I have a First direct offset as well. Its worked well so far. one savings account and current account liked to it.
Had a first direct account and now with RBS oneaccount.
Simply put if you can manage your finances then I would highly recommend taking out an offset. These type of mortgages will not work for people who like to spend spend spend!!
Silly question but are there any tax implications or do you avoid paying tax on interest as it is offset against interest you would pay on the mortgage? Am I right in assuming you don't actually get physical interest so tax bill will be reduced?
That's the jist of it, you don't get interest on your savings, so no tax.Originally Posted by Craiginuk
Having looked at current fixed rates, they are much more attractive than they were a while ago, i can get a 4yr fix with nationwide at 3.29% with only a £99 fee and the ability to overpay £500 a month and still have access to it if i need to. Think that will be a better deal for me compared to a 3.69 or 4% offset.
Brighty
I've had one for ages (will be paid off in 2016) and it's been pretty good. It came with a mahoosive overdraft facility (because I had a low loan to value ratio), which although I've never used it would have provided very cheap finance.
Andy
Wanted - Damasko DC57
ESP if you have equity.
Pay off early......or buy a new watch.
You have the choice, at a good rate.
The only downside is the slightly higher than usual interest rates.
I've looked at them a few times & will get one eventually but for now I'll stick with my building society SVR linked to the Bank of England base rate.
I have one from the Woolwich (now Barclays) that I took out around 11 years ago - interest is set at base + 0.25% for the term (20 years) which is a stunning rate!! I funnelled all my cash savings against it and from day 1 overpaid the recomended amount, it wasn't long before the savings off-set the outstanding amount and therefore my enhanced repayments were against capital only - net result was mortgage paid off in 9 years having paid a much reduced amount of interest and a very happy Mr and Mrs Stoat.
I've left a notional amount on the mortgage just to keep it open and therefore provide a low interest lending option should I ever need it as I can borrow up to the original mortgage amount during the term of the mortgage.
One thing to watch out for is that once (or if) your savings off-set exceed the value of the loan then you'll need to manage the excess carefully as the credit interest paid will be minimal if not zero.
Personally I think these are a great way to finance a house if you're financially disciplined and you have a reasonable amount of savings to off-set (as current rates on these products may be a tad higher than other traditional mortgages).
Interesting thread; I might look into this when my fixed rate tracker ends in December. I have a fair bit in savings thanks to my late father that is just sitting there doing nothing so it makes logical sense to take one of these mortgages. Especially as I am a tight git and would be very happy seeing how quickly I can reduce the balance.
YBS has an offset product whereby up to 3 accounts ( including those of a third party) can be offset.
So if a family member has some cash earning the square root of diddly squat they can help out by electing to offset against the mortgage so payments are all/mostly capital
My base +0.49% term mortgage was the best I'd heard of until now, I tip my hat to you sir.
I have a First Direct offset mortgage. Offset mortgages work well when you have savings to offset. You don't get the really low interest rates on your savings but you don't pay the higher rates on that proportion of your mortgage. With a bit of luck I have managed to get my savings to offset my mortgage totally. It is like not having a mortgage but I have the option of using the money if there is an emergency. It is this reason that I have not paid it off plus the fact I am self employed so it would make it easier to move house if I decided to do that.
I have been with First Direct for years and they have been very good to deal with.
Surely it depends on what base rate he's reffering to?
Some places have their own base rates which track a couple of % above BoE base rate.
'Base' rate refers to BoE base rate in my experience.
If that's the case I'm off to the Woolich to have a nosey 0.9% doesn't seem so good anymore.
You're on base +0.9%? I'd say that's a very good deal at the moment.
Yep, BoE base + 0.25%
But that was when I took the mortgage out 11 years ago when base rates were around 5 or 6% (see my post above), and just as the Woolwich entered the off-set mortgage market and had a very limited offer on only available through brokers. I've no idea what Barclays (who took over the Woolwich) offer now, but I doubt you'll see a rate like that anywhere for new applications
I've made a load of regretful financial decisions in my time but this wasn't one of them!
ETA, actually it's not like it was a cunningly good decision on my part - the broker got the deal for me.
Same here, mortgage was taken out when base was 4.5% and no-one expected it to go to 0.5%.
Yep, Mine was similar and I had planned to keep it whilst trying to save as much as possible and move the whole lot to a Offset once base rate goes up again.
It's a shame we're planning to move this year, if we can get this selfbuild lark going.
Thankfully mine is a great rate AND an offset. I've moved once and taken it with me, not sure I would have moved if I couldn't!
I have the same mortgage but at 0.75% above BoE base for the life of the mortgage and I thought that was a fantastic deal! What a bargain yours is.
I've done the same with overpaying and have paid off much of the capital now. The low interest rate comes in very handy for short term "loans" like paying the tax bill and makes buying a new car much less painful.
Offsets only really work if you have significant savings and/or you are a higher rate taxpayer with savings, so you don't pay tax on those savings. You do also need to be disciplined and not just keep borrowing against the offset.
I've had a similar experience. Refinanced about 4 years ago with an Offset from Woolwich (Barclays). At the time I was nervous about a floating rate (0.74 above base). At the time it worked out to about 5.74%, then with all the rate reductions my mortgage rate is now only 1.24%. I've overpaid substantially so pay minimal interest now.
Very glad I did it.
I think my father has base rate MINUS something but will have to check with him before trying to take the claim - do remember those offers although I took a longterm fix in the end...
Offset mortgages must be in a sweet spot again with higher interest rates on borrowing & lower IR on savings than a few years ago so probably worth another look for the financially disciplined or those who don't want to actual pay off the mortgage and end up with little savings.
I had one since 2001 with intelligent finance.
The rate was slightly higher at the time, but I'm fairly controlled with my money, and was leaving anything unpaid till late as possible, maxing out interest free credit cards etc.
It seems different now in the sense that many banks only pay the interest on the loan. Mine was paying capital also. Every now and then they offered to either reduce payments or reduce the terms. Eventually we broke even and were paying capital only.
The main downside is that every time i bought something of value, I would be working out the monthly cost in interest, so you will see a Rolex worth £150 a year and a 15 grand car £600 in interest payments.
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