After a bit of free of course advise on the old mortgage

Mrs Trout has just inherited a nice sum of wonga and we are wondering what to do with it to make our lives a bit easier .

I am self employed so have a very variable monthly income so wondered if we paid a lump off the existing mortgage is there a product that you can pay more in times of flushness and less when the income is bad or even take a little of the over payments back out .

or am i wanting the unobtainable

Not recommending any particular product, but an offset mortgage would do what you described.

You need to be disciplined in some respects as you can draw back up to the value of the original mortgage so you could technically still owe the same at the end if you kept pulling cash out and not paying it off!!

You still have to pay each month but technically you could withdraw the mortgage payment from an overpayment in the mortgage and put it in you current account on a lean month to cover the payment.

any interest only mortgage will normally allow you to do this. Obviously you do need to pay the interest only segment monthly (and you'd need to figure out weather a 'down' month would still allow this) but you can top up that payment with whatever cash you have laying about.

We have one with the One Account and use it to chip away at the capital – we overpay at the beginning of every month then do all our food shopping on a cashback visa card. Then when the bill comes in we take out as much as we need to pay off the visa bill in full. All we need to do is make a phone call to transfer the funds and it goes straight into our nominated account.

Apparently they now also do one that you can do yourself through interweb banking.

It isn't the best rate around (3.9% at the mo I think) but if you use it properly and overpay it should help pay off the capital more quickly.

As above, Virgin One Account.
Try to keep as much money as possible in it. We hope to pay it off early and hence have paid much less interest.
But it is good to know we can take a big break from payments, or even take more out, if we need to.

Need a bit of self discipline with this sort of account though !!

I've had a Woolwich/Barclays offset account for 8/9 years and have had no negative experiences. The deal I have is 0.5% over base but won't get anything like that now.

The First Direct mortgages let you do this as well but unlike some of the older 'One' style mortgages you keep a seperate current and savings account as well as a mortgage account. Everything is offset but you can manage your money in a more conventional way.

I'm re-payment all the way. The only thing I'd look for is the mortgage that charges the least for early redemption, or for knocking large lumps off the outstanding capital.

🙂

The First Direct mortgages let you do this as well but unlike some of the older 'One' style mortgages you keep a seperate current and savings account as well as a mortgage account. Everything is offset but you can manage your money in a more conventional way.

Agree 100% with this. Having multiple accounts that are 'offset' against each other really helps to enforce the discipline of managing your money. With a single account all you see is a huge -ve figure each month, making it much easier to be less than honest with yourself…

I like the visibility of the FD approach as well – you see the interest being debited every month through the on-line banking, so it's all very 'real'.

Note that offset type products aren't always the best route if you don't routinely have a big enough balance to offset. It may be that a flexible repayment mortgage (that allows over/under payments) is more suited if the rate/fees are more competitive – but watch the overpayment limits and fees.

You do usually pay a premium for an offset a/c so do need to compare but the flexibility for me was worth quite a bit. I don't have to 'manage' my money as be default it's in the best place – though actually as my rate is so low it's better to put my money in a savings a/c at the moment. I do like the fact I also have an overdraft at the same rate somehow based on my property value and income so that I can easily by a dream car if I choose – but maybe that's a bad thing…oh well I'm far too sensible to get carried away.

Thanks some interesting posts to consider there

Paying the mortgage off quick is one desireable goal
lessening the monthly outgoings would be nice as would the ability to have extra money on call if needed .

We've had an Abbey offset for the last 5 years (dunno how the current Sandander equivalent compares) – we had assorted savings to rationalise and endowments ending at various points, plus we're generally pretty good at saving. Currently we've got about 6 years remaining having paid off/offset about 70% of it, but we're still paying in at the same level as we started, so should finish even earlier. The first few/several years of a repayment policy don't pay off much capital, but it's quite noticable how much it's coming down now. Ironically, we'll probably get it paid off before the old endowments mature.

I think we picked exactly the right thing for us, YMMV. One downside of a repayment (IMO) is it would require you to be quite disciplined in paying off the capital – whereas a repayment mortgage doesn't need much thinking about (apart from lobbing in spare cash if you have it).

As mentioned, check there's no limits/penalties on overpayments or paying off lump sums.

Another minor point to remember about re offset mortgages – if you're exceeding the bank deposit guarantee limit (ie guarantees you get your saving back if the bank goes bust http://www.savingsaccounts.co.uk/bank-deposits-guarantee-protection/bank-deposits-guarantee-protection-1.html ) you may want to shuffle the excess cash out of your savings pot to explicitly pay off the capital, and keep with the protection limit.

I'm on a first direct tracker offset. The rate is 2.29%, overpayments are unlimited and there is no exit fee. I only pay the interest and use savings and investments to pay of chunks of capital

I couldn't find a cheaper or more flexible product in the market, so if anyone knows of one I'd be interested