Offset mortgages and over-payments

I can't see how, might be awkward if the acount makes it difficult to go back the other way and you want to. ( I have a Barclays account which you can only really xfer one way)

Yes, because next month there will be 300 less mortgage you'll be charged interest on. Wont make much difference at first because interest on 300 would be v small (lets say 5%/12*300 = 1.25 I think) but over time that will add up. Hopefully my calculationis correct? If you did that over a year then in the last month there would be 3,600 less mortgage you'd be charged interest on, and that will continue to increase. So at the end of the 10th year that would be 36,000 you'd not be paying interest on which owuld obviously bea substantial sum. There are sites with calculators which will show you the effect of overpayment in terms of reducing the lenght of the term, and the total amount of money saved.

Thanks for the reply.

Is that still true for an offset though? Because if the money is in the savings account, or has been xfered to the mortgage, either way, it is deducted from the total amount on which interest is calculated? In effect, isn't it the same question and answer as above?

Not trying to catch anyone out, but it just seems to me that it is, but that seems very simple.

Ah, I see what you are saying! Then yes, you must be correct and I was wrong, that its the same effect whether you pay it off, or leave it there, because its 300 less you owe. However, there is a psychological and administrative difference in that that 300 is in your general 'pool' of money and will probably end up getting spent. One compromise might be to set up a seperate 'pot' of money and put put it in there so you 'know' this is money you do intend to pay off the mortgage with at the end. Otherwise there is a chance it will just get spent. FWIW I do both, I overpay and have a seperate 'pot', because apart from anything else I want to really pay down my mortgage to at least below where my underperforming endowments will end up.

"CQMMAN" wrote

Of course it's not. Tumbleweed must have forgotten that, if you didn't overpay the 300, you'd have an extra 300 in your savings offsetting the mortgage interest.

"CQMMAN" wrote

Exactly!

I agree with you and think Tumbleweed is not quite right.

I would say that it makes no difference due to it being an offset mortgage as long as the 300 says in the offset account. What I notice with the IF mortgage I have though is this. Say I have a 50K with 10K of savings. Repayments on 50K is say 400pm (haven't worked out the real numbers... that's Ronalds job :-) If I pay 500 pm (100 overpayment), then when IF come to re-calculate my payments (which they seem to yearly) they notice I have overpaid and specify that a new lower monthly payment. If I had left this in the offset account, this wouldn't happen. Having said that, as you are paying a fixed amount each month, it makes no odds anyway.

The only other difference I can see is if you overpay, then it *may* be more difficult to get the overpayments back in the future if you want to.

Pete

Cheers. Thanks for that. It is confusing becauase it seems so damn simple really. Just got to remember to make sure my savings keep going up :)

Cheers

Yes, Tumbleweed also agrees with you having rethought!

Barclays do that as well but I have a fixed monthly payment specifically to avoid that problem.

Agreed, but there is the other danger if you dont overpay of 'oh look at all that money in my account think I'll buy a new TV'. One intermediate way is to place it in a marked account which is also offset, so at least its not counted as part of your current acount. Barclays let you do this, I believe Virgin do as well.

Thanks. I overpay as well, largely because like you said, it gets spent otherwise, but with the rise in interest rates I was thinking about putting another 20 or so a month away, but as long my savings as regularly increasing, I might leave it there and make the odd larger transfer at times during the year.

Cheers CQMMAN

:-)

I do the same also.

Totally agree. I have my IF a/c set up this way also. A mortgage, a current a/c and a savings account. In fact I also have a cash ISA with IF which is also offset for the day when my savings are larger than my mortgage. By my calculations, this will be sometime the other side of never :-)

Pete

I know you have the answer you need but have half a penny worth to add. It may be different now but a few years ago before I used an EGG saver mortgage, which works as yours seems to, I looked at the Woolwich offset mortgages. These were less simple (and far less flexible) and only allowed you to overpay to a max of 10% of the principal each year. I take it that yours has no such limitations. If you didn't pay off in the year you lost the opportunity.

I no longer overpay but transfer money to or from the savings account. I find it re-assuring to know that a cheap personal loan, should I need one, is just a BACS transfer away.

That is no longer the case with the Woolwich/Barclays Offset mortgage, you can offset or overpay any amount. (there is a penalty if you pay it off in the first 2 years but thats to do with the subsidy they give you to xfer to them)