first direct offset mortgage now that my 3year trackers is about to run out?

That is because they are 'salespeople', not 'advisors'. They a clueless as to what customers really need.

You don't necessarily need an offset, just one which allows overpayments without penalty. If you are making lots of overpayments and the loan amount is small, the fact that the interest rate is slightly higher is not important.

Identify the best deals and call up the banks directly.

Woolwich have a tracker which allows overpayments. There is no arrangement fee. Not sure if it is available as a re-mortgage. You can expect to pay valuation fee and a fee on redemption of your existing mortgage (check the T&C).

Watch out as some 'trackers' track the Banks own base rate, not the Bank of Engand base rate.

Snip

I'd say that you don't HAVE to arrange a new mortgage now*. You still have a mortgage with Nationwide. OK, so it may no longer be at an attractive rate, but if you're planning on moving in a year it may well turn out that the cost of remortgaging would exceed any savings in interest paid. More so, if you decided to put your lump sum into repaying part of the loan.

• Sure, Nationwide would LIKE you to arrange another mortgage deal through them, paying fees, earning commission for salespeople etc, but you don't HAVE to.

However, if you need to hold significant amounts of money from your monthly pay to pay things you are committed to - council tax, visa bill, telephone, gas, electric etc, later in the month then this can be offsetting your mortgage for at least part of the month.

Additionally, if you overpay on your mortgage then you have to allow for having instant money available "just in case". With an offset mortgage it's just there if you need it. The converse, of course, is that if you are not disiplined then you may spend the surplus which is harder to do if you are overpaying on a repayment mortgage.

Tim.

You can usually transfer the mortgage to the new house on the same terms - but check with the bank/BS.

They don't do offsets, but they do do flexible mortgages - which IMO are better than offsets. By flexible they mean you can overpay, getting interest benefit straight away, and build up an "overpayment reserve" which you can withdraw when you like. Some of their mortgages, like trackers and fixed rates, have restrictions on how much you can overpay (500 IIRC).

They are better than offsets because you don't have two separate accounts and the DWP can't point to the "savings" account if you try to claim benefits - but the money is still there if you need it.

Remortgaging means getting a new mortgage without buying a new house. New purchase means you're buying a new house.

The interest benefit from that is fairly trivial - maybe 20 a year or so.

The same is true of flexible mortgages, such as Nationwide do, although access may not be instant (you may need to wait a week or so).

For someone taking home 2k per month (so earning about 3k/month) with a

100k (approx 3x salary mortgage) at 6% who spends all their money fairly evenly through the month, they have on average approximately 1k less on their mortgage throughout the term, so will save about 60GBP in interest each year.

Compounded through a 25year term, that first 60GBP is worth about 250GBP less payments on the mortgage. Over the full term of the mortgage they will save about 3k (or the equivalent of nearly half a years repayments on a normal repayment mortgage).

This really is a free lunch (provided it doesn't cost you anything extra to change your mortgage)

Tim.

You fail to account for the interest paid on the current account - Nationwide for instance pay 4.25% gross, so 3.4% for a basic rate taxpayer (as in your example, someone earning 3k/month would only pay basic rate tax). So the saving is only

26 a year.

Also it is quite easy to arrange for major bills like credit cards, gas/electric, mortgage etc to be paid shortly after payday. About 70% of my monthly spending goes out within 5 days of payday, so my average current account balance is probably under

25% of my monthly pay. Putting this into your example, the saving is under 13 a year.

So when comparing mortgages, current account offsetting is worth about a 0.01% reduction in the interest rate on a 100k mortgage.

But you could just as easily have your bills paid just before payday. I don't think I've ever arranged a bill to be paid on a particular day relative to payday - once upon a time I was paid four weekly[1] rather than monthly so it made little difference to me.

What would be interesting is whether your bills have to be paid in the month. Assuming you get paid at the end of the month and pay your bills at the beginning of the month, can you delay your bills to the end of the month or would you have to pay them in the previous month?

I wasn't aware that any current accounts paid such a high rate of interest. I've got a Natwest One account which is currently paying 1.25% on credit balances (which is more than the Nationwide for balances >3k). The borrowing rate varies from 6.6 to 7.2% so my example could still be

40GBP/year

in the worst case. In the best case it could be worth about a quarter percent for my example.

In my case, where I tend to build up large sums in my current account(s) before I get around to moving it somewhere paying a better rate of interest, the current account offset mortgage was worth far more than that to me. Previous to taking that mortgage, my previous mortgage had been a five year fixed rate deal with only small overpayments allowed.

Nationwide current account is charging 7.75% for an agreed overdraft and

24.9% for unauthorized borrowing so unless your monthly outgoings are extremely regular you can't afford to use a standing order to move all your surplus money from your salary to reduce your mortgage.

Provided people have the disipline to use it properly, I can't see how you can lose on a current account mortgage unless you can get a better rate of interest somewhere else. Even then, you may well do best splitting your mortgage into a low rate portion that you cannot overpay and then using the current account mortgage to absorb the overpayments you can afford to make. Obviously, how you split it will depend on what size of overpayments you expect to make - 100K with 100-200GBP/month extra is very different from 100K with 1-2K/month extra and for the latter, tying 50K into a 5 year fixed rate deal would be foolish.

Tim.

[1] Which caused some painful tax issues in the tax year when we got paid 14 times rather than 13.

OK if you're paid 4-weekly then you have a point - but if like most people you get paid monthly it's simple to arrange most bills to be paid shortly after payday.

Depends. Credit card bills you can usually choose the payment date. I pay mine by DD and choose a statement date about 22 days before payday (making the DD come out just after payday). They are by far my biggest bills. With gas/electric/water/phone etc IME you can choose when you pay them.

Getting a mortgage with a 0.04% lower interest rate would save you the same on

100k mortgage. So 6.55% with no current account offsetting is better than 6.6% with current account offsetting.

Eh? 0.25% of 100,000 is 250 - the highest saving you've mentioned is 60.

It's not much effort to simply log onto internet banking every month and move money. I don't tend to get big bills which I can't either pay by credit card (thereby coming out of next month's pay), or that I get notice of and so can plan for. So it's simple to work out how much I can afford to transfer every month. My pay varies every month anyway - so a standing order is out of the question.

Precisely. You don't lose with a current account mortgage that pays the same interest rate as a regular/flexible mortgage. But the rate only has to be very slightly lower with the regular/flexible mortgage for that to be the better deal.

You can do that? Which banks/BS offer such a split mortgage?

You don't need a "split mortgage" product. Just get two products. One inflexible and cheap, the other (a "second mortgage") flexible and dear. Not necessarily from the same lender.

Eh? Mortgage lenders tend to want to hold onto the deeds, they usually want the primary/only charge against the property. Don't they? What lenders give a standard mortgage when another lender already has a charge against the property?

I guess you could do it if you own two properties.

No idea where I got that from! It should have been 7.2-3.4% * 2K 76GBP.

I think I've probably compounded that so that the reduced interest you pay in total based on that first years cashflow in the current account is equal to about 0.25% reduction in year 1. (which isn't a very useful comparison)

You're obviously more disciplined than me. Only last month I realized I had nearly 5K scattered across various accounts earning me between 0.1 and 1%.

And you only very occasionally have to let 5K build up in your current account and you've lost all the benefit of your lower rate flexible mortgage.

The other (psychological) advantage of a current account mortgage is that you are constantly reminded of the debt which gives you an additional incentive to pay it off more quickly.

You can use multiple products (from multiple banks if necessary to get the best deal).

I certainly got the impression that both Barclays and NatWest could tailor a solution like this - not sure if it would have been two separate mortgages from one provider or one product.

Tim.

Deeds? How quaint.

A "second mortgage" isn't the same thing as a "standard mortgage". Many lenders offer the facility of additional borrowing where there already exists a first charge. More generally referred to as a "secured loan".

It's so they can charge deeds release fees.

Do any offer a current mortgage as a "second mortgage"? If so what rates do they offer?

Oops meant "current account offset mortgage".

Should be half that - 38 - your example was an average current account balance of

1000 (varying between 2000 and nil).

Nope.

coming

every

If your not disciplined then maybe a current account mortgage isn't suitable for you! Read your quoted words immediately below!

interest

Depends how much lower the rate is.

On the other hand, as you have such a massive overdraft it may not seem much worse being 96,000 in debt than 95,000.

But what rate do you get for the "second" mortgage?

This was best case - i.e. all you outgoings happen after the salary has been in the account for nearly a month - your 0.01% was the opposite where all the outgoings happen just after being paid.

My current account mortgage is in credit. That's why I've started building up significant sums again but not put them to best use. While I still had borrowing I never had the problem of leaving money in accounts that basically didn't pay any interest.

What's worse, you have to keep checking the interest rates because what was OK a year or two ago can be close to zero now.

I've got a Barclays instant savings account linked to a Barclays current account so that I only keep a nominal sum in the current account. In april 2000 it was paying 2.4% between 500 and 2.5K when the current account was paying 0.1%. Now it's paying 0.15% and the current account is still paying 0.1%. For the tax year ending 2002 the rate dropped from

1.9% to 0.65%. Had it stayed at 1.9% I'd have got double the interest. Because the only transactions on that account are automatic transfers to and from the current account I never really look at the statements for the savings account.

What I'd now like to see is an account that say, guaranteed to pay no less than 1% below the best paying instant access account. Ditto 30 day notice, 60 day notice, e-savings etc accounts.[1]

It will be interesting once fee paying current accounts become ubiquitous whether they will then start paying a respectable rate of interest. (I suspect not, people have been conditioned to current accounts not paying interest)

Still, digging through all that old paperwork to write this has convinced me I really must write and close that Barclays account (that has almost no money in it anyway). Finding a reasonable deal for banking shouldn't be a never ending job :-(

[1] Actually it would be an interesting exercise to open e-savings accounts with everybody you can find and then have a screen scraper app that logged in once per month and checked the interest rates and moved your money automatically to the best paying one. Even just grabbing the rates and emailing you if you should move your money would be a start.

Tim.

Don't know. I imagine anyone who offers a CAOM (or failing that a flexible mortgage) would be open to negotiation to accept a second charge as adequate security, if the circumstances are right.

Highly unlikely that you will get a 'flexible' second mortgage and certainly not one that would be cheap enough to make the exercise worthwhile.