Does anyone have (or has had) an offset mortgage?

I’m sorting out a new mortgage (I’m not a first time buyer, but have previously only had a joint mortgage and now need to have one for just me), and am deliberating between having a ‘standard’ or offet mortgage (whichever I choose I’d want it to be fixed rate rather than variable).

Part of the attraction of an offset mortgage is that it would allow me to reduce my mortgage by using any income / savings in my current account (I will probably use all my savings initially as a deposit, but would be building these back up again over time), whilst retaining future access to those savings if required without having to remortgage (for example to do work on the house or if I lost my job).

So, an offset mortgage seems like a good option, but what are the downsides compared to a standard fixed rate mortgage? And are there different types of offset mortgage?

Also, have any of you ever used a mortgage advisor? If you have, who did you go do? And do you have to pay for independent mortgage advice?

http://www.yourmortgage.co.uk/mortgage_basics/offset_mortgages#offset%20mortgage

they usually have quite high setup fees IIRC

I find offset great for flexibility of access to savings, ability to over or underpay and ability to get to your savings when you want.

First direct didn’t have any fees when I did it last year.

The only downside I can think of is that I might have found a marginally higher savings rate with an ISA than the offset was giving me, but I think tax would have wiped that out.

I will probably use all my savings initially as a deposit, but would be building these back up again over time

I was of the understanding that offsets work best when you have a significant amount of savings (>20% of the value of the loan) that you won’t need to tap into

Not an expert at all but currently going through the mortgage maze and from the advice I have had I reckon you would be better with a standard for a few years until you have savings to offset, then revisit it then with a view to offset. Worth chatting to an independent advisor about.

I had one with Egg and paid my mortgage off really quickly with it (in 5 years from opening the offset account). I liked the fact that my savings were still accessible (eg if I had lost my job). Highly recommend them.

mmm – just checked the First Direct one, which doesn’t have any fees (yey!), but their offset mortgages are interest only. And I need a repayment mortgage.

Any suggestions? (will go check out Egg)

I have considered delaying for a couple of years, but I have read that even if there is only a smallish amount in your account, it helps reduce your mortgage repayment period?

I think Egg has been sold to a building society now.

Virgin money also used to do them.

If you can link your current account as well, that would also help (as otherwise you need to keep transferring spare money to the linked savings account).

Mine is with Intelligent Finance

I’m with first direct, they are great.
Actual value of the offset isn’t that great (ie when they work out what additional saving you’ve made) if you don’t have a lot of savings but….the flexibility is worth it’s weight in gold (we’ve been doing work on our house)

had a virginone account for about 7yrs. Great, flexible. But what started off at +1.0% above base turned into +2.5% above. Then I jumped ship.

Problem was they were far too flexible and I have no will power.

I will probably use all my savings initially as a deposit, but would be building these back up again over time), whilst retaining future access to those savings if required without having to remortgage (for example to do work on the house or if I lost my job).

Not following you logic really – you will have no savings after using the money as a deposit so you won’t suddenly be able to decide you need £5k and ‘take it out’ of your offset mortgage – it just won’t be there.

My repayment mortgage allows me to overpay, and I can still take it out if required or take a repayment holiday.

OK, I might have been somewhat confused in my mortgage terminology. What I’ve been considering is a mortgage that is linked to my current account. Is this an offset mortgage or a ‘one account’ or a ‘current account mortgage’?

Although I will not have any savings left to offset initially, it is likely by month 2 of my mortgage, that there will be funds building up in my current account again, which I would like to always have access to but thought whilst the money’s there for the proverbial ‘rainy day’ it would be useful to use it to offset my mortgage interest. (Not sure if that makes sense!)

Check out repayment mortgages if they are cheaper to set up – like I say you could overpay (up to 10% a year IIRC) and I’ve still got access to it so it works almost like an offset.

Virgin money also used to do them.

It is now called The One account – Virgin sold the product.

We have it and it is very useful – I overpay every month, buy things on a cashback credit card then withdraw the overpayment (well, the plan is to only need to withdraw *some* of the overpayment but that doesn’t always work) to pay off the credit card in full. That way I get to borrow money for free (with cashback) and my own money is chipping away a little at the capital owed.

I’ve got a oneaccount.

Hands down the best financial decision I ever made. If I don’t move house I’ll be able to repay my mortgage about 15 years early!

I takes a bit of getting used to, you no longer have a mortgage and a current account you just have one pot of money (well debt!). You are given a repayment guide as to where you need to be at the end of each year and it up to you what you do with your money to get there. You can overpay as much as you want or not pay at all so long as you are ahead of your repayment guide.

If you are disciplined and can afford to overpay it will take years of your mortgage and potentially save you thousands of pounds

Yours sounds like a different version to mine – we still have separate bank accounts and mortgage account rather than it all be in one big account. I think that would confuse my head in.

The first direct offset is setup as an interest only product but you pay the equivalent of a repayment so you are paying capital and interest every month.

Online you can see each month the value of the offset and how much you save by offsetting. The payment is fixed though but can be adjusted up and down.

forge197 – not sure what you meant by:

“The first direct offset is setup as an interest only product but you pay the equivalent of a repayment so you are paying capital and interest every month.”

sorry, I’m probably just being a bit dense 😳

It would appear that the oneaccount is now provided by RBS, they give 3.75 as a variable interest rate – but say this is valid from April 2009 – not exactly a very up-to-date figure!!!

If you have a lot of savings or can overpay then the higher rate should be offset by the offset function – if you won’t significantly reduce the duration of the mortgage then go for the cheapest rate you can get and ignore the offset option.

Was in answer to this

mmm – just checked the First Direct one, which doesn’t have any fees (yey!), but their offset mortgages are interest only. And I need a repayment mortgage.

Although it looks to be interest only as a product it actually operates like a repayment as the amount you pay is interest + a bit to pay off the capital, otherwise at the end you’d owe what you borrowed 🙂

“We have it and it is very useful – I overpay every month, buy things on a cashback credit card then withdraw the overpayment (well, the plan is to only need to withdraw *some* of the overpayment but that doesn’t always work) to pay off the credit card in full. That way I get to borrow money for free (with cashback) and my own money is chipping away a little at the capital owed.”

Fanylion, how much do you think you save each month doing this?

I’ve had an offset for 6months but not really using it to its full potential.

And which credit card is best for it or ant other tips to get the most out of it.

Cheers Andy

The big drawback is the interest rate – it will be less favourable on an offset account.
The only way I could get my head round it was to get a spreadsheet of all the set-up fees and interest rates and offset amounts.

It is then possible to find out what the crossover value is
eg on 100k at 3.5% standard mortgauge = 3.5k repayments in a year
100k at 4% offset (with zero offset) = 4k repayments in a year
87.k at 4% offset (with 12.5k offset) = 3.5k repayments in a year

so until you have 12.5k savings you will loose out.
but the flexability of a rainy day fund has a value
etc. etc.

We had one with IF, absolutely the best thing we ever did. Very simple to understand, setup and administer. The only ‘problem’ is that you never feel like you have much spare cash, as it gets passed over to the mortgage. No mortgage anymore….that feels great 🙂

Fanylion, how much do you think you save each month doing this?

I’ve had an offset for 6months but not really using it to its full potential.

And which credit card is best for it or ant other tips to get the most out of it.
To be honest I don’t know how much we save as the amount I take back out each month varies wildly from one month to the next – we use it as a savings account too (so sometimes large sums come out for holidays etc).

We only got it originally as I wanted a mortgage that was flexible enough to overpay large sums without penalty should I ever have a windfall (as I have my own business I still dream this might happen one day….) and the rates were (at the time) favourable to other standard rates. I do wish I had used it to its fuller potential from the off though as I am sure we could have chipped away much more at the capital *but* it *is* going down and the letters I get keep saying things like ‘keep on at this rate and you will pay it off 5 years early’ and things like that. As time has gone on I have become more obsessed with paying it off quickly and have started to use it more aggressively (we DID have separate savings accounts which I now see would have been more effectively used in the offset mortgage account).

We have a Capital One CC (no fees, 1% cashback – but it was 3% for the first three months).

Sue, with first direct, its your responsibility to make the capital repayment if you want to. I just do it in a flexible way rather than a set amount each month. There is nothing to stop you paying it though!

The big advantage for me is that your savings are tax free. If I put 10K into my offset mortgage I get interest at the mortgage rate and pay no tax at all. I have instant access as well.

I was under the impression that many lenders allow you to overpay to create an overpayment reserve. This has some restrictions mine is no more than £500 per month, but in reality I can easily live with that.

Mine is with Nationwide, competitive interest rate, not the best, but cheaper than paying a premium for a specific offset. The other drawback is I can’t just draw my overpayment out with a bank card or whatever method and it is a bit of hassle.

But if you are starting from zero savings it may be worth looking at such deals

I think offsets look good, especially if you live your life on credit cards and then pay them off in full. If they’re still about when we’re in a position to remortgage and we have enough equity I’d seriously look at one. Mind you, if we had enough equity for an offset mortgage we’d likely be able to access must better interest rates on fixed products too.

Same as Richmtb here, known as the oneaccount everything goes in and does take get some getting used to. We get a rate of 3.65%, the rate depends on ltv. Their calculator can show what savings you can make, which can be achieved just by having your salary going into it as interest is worked out on daily basis, but obviously the more you leave in the better the savings.

Servo, makes a good point; on ‘savings’ we’re effectively getting a 3.65% interest rate, last time I looked to get rates like that needed lots of cash and few withdrawals a year.

I had a One Account . I paid off my mtg in 6 years , as I inherited some lump sums.
Each month they take out the interest only . Look at it as a very large overdraft agreement . One Account is designed to work for you if you spend less than you earn most months .
If you have no will power , or a ‘see , must have’ mentality then this is not the product for you.
The repayments are what you dont spend each month , so it might be £10 or £500 . all depends on your outgoings .
The One Account website is very good and has a savings calculater on it .
If ,in a month you have to buy car tax , a new washing machine , some wheels and go on holiday no problemo . As long as you have been overpaying you can aceess the overpaments up to your ‘overdraft facility’
I would have another one ( well ..still got it with a cash fund accruing ) for next mtg .