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Another novice question - Offset mortgages....

Hi all,

I'm just floating a few ideas here... so forgive me if they don't work out...... I'd be pleased to hear your opinions.

I'm thinking of this..... I have some cash in my 'offset' account for my mortgage.... Because of the current interest rates, I effectively earn, on average 4.56 per month, per thousand.... If my calculations are correct.

I can borrow funds @ 6.4% APR for 10,000 over 12 months. This would effectively cost me a total cost of repayment of 10,342.20 (ie. 342.20 for the loan, or 28.52 per month..... which equates to 2.85 per month, per thousand).

Therefore, I can borrow funds at 2.85 per month, per thousand, and put it in to an offset account, an earn 4.56 per month / thousand.... thats effectively earning money 1.71 per month, per thousand......)

Do I have this correct??

Thanks

Reply to
Paul Aspinall
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If you can "earn" 0.00456% per month this would make your mortgage APR some 5.61% or the nominal rate about 5.47%. Is that right?

If you think you can make money by borrowing at 6.4% APR and then "investing" it at 5.6% APR, then you're too close to the trees to appreciate the forest, or should I say you're counting the pennies but have lost track of the pounds.

Where is the capital going to come from, which you have to pay back on the

6.4% loan? Back out of your offset account, no doubt. This means that on average over the course of the year the balance therein is not going to be some £10k higher than it otherwise would be, but only a bit over half that, thus also halving your "effective earnings".

No, it's like borrowing at 0.00285%pm and earning at *half of* 0.00456%pm.

Sorry.

Next dream!

Reply to
Ronald Raygun

Thanks for the reply...

Comments embedded.

My mortgage is a flexible one, which is .75% above BOE base.. so about 5.5% currently. I know this isn't the best rate, but I want the flexibility to over pay etc.

My thinking, flawed though it may be, was to take the 10k loan, and essentially pay it back over 12 months (ie. using itself to pay back), but with the 340 extra (ie. interest... but hopefully earned more than this whilst in my offset account)

Oh well.... I'm a novice..... ;-)

Reply to
Paul Aspinall

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