mortgage overpayment question…

moving house and looking at new mortgages, an offset one would be beneficial to me, but the First Direct offset ones are interest only.

The interest is calculated daily, and theres no limit or penalty for overpayments.

Now lets say the interest only one is £200 cpm , and repayment is £500 over 25 years.

Will overpaying the interest only one by the difference (in that example £300) make it the equivalent of the repayment one (assuming interest rates were the same) Or is it not as simple as this?

I want to use an offset one as I’m self employed and money builds up in them to a reasonable amount between the January and July tax bills?

cheers

Yes, I had the same approach as you are suggesting. Check out my calculator here:

https://docs.google.com/spreadsheet/ccc?key=0Al-Bq4gR-Hn7dHdROXVlaFJtYnFQSlVoZzI2c085R0E&usp=sharing

cheers mudshark that looks an impressive spreadsheet, I’ll check it out properly tomorrow as just using my phone for internet at moment.

when we paid down our most recent mortgage.. ( 25yrs paid off in 7) we used lump sums and regular monthly overpayments. our issue was to use the money to reduce the monthly repayments or to reduce the term. the BS ( nationwide advised there was nothing in it so we used the overpaymenst to reduce the monthly standard payment// the good news.. nationwide write off mortgage amounts under 1000 quid..

Why would you hold an offset mortgage and make overpayments?

As I understand it…

Keeping the £300 saved each month in the savings account linked to the offset will have the same effect as making the overpayment. Your income into the offset each month will reduce the amount owing in that month, but this decreases as you spend, obviously. If you end the month not spending £300/month of that monthly income you’d have a smaller interest payment than having a capital repayment mortgage. If you don’t make the overpayments you have access to that money instead of taking out a loan for a car, say, which should be a cheaper option than taking out a separate loan. So savings there and same goes for 0% interest credit cards – keeping the money in the offset as long as possible and spending responsibly should pay off.

The other thing is that to save at the same rate as an offset you’d have I have a great savings account or good investment to win after tax.

All this assumes the same interest rate. I don’t think that tends to happen though. So you’re paying for flexibility.