Author Topic: Using an offset mortgage to advantage in FIRE  (Read 517 times)

celticblue

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Using an offset mortgage to advantage in FIRE
« on: June 13, 2018, 06:38:12 PM »
hi,

I have a fully funded offset mortgage in the UK (meaning I owe 200, 000 dollars but have an account containing 200,000 dollars where the savings interest forgone offsets the mortgage interest).

I am wondering whether I should be using it as a tool in my FIRE plans.

I am recently FIRE and intend to use proceeds from selling other home to fund a 3 year CD ladder with 3 years of expenses to reduce Sequence of Return Risks.

The rest of my stash is 80:20 stocks to bonds. Or will be with home proceeds

Should I have a strategy for dipping into the mortgage offset account? How and  when should I do this? Is this already mitigating SORR ? I have not given it much thought but as I am now recently FIRE and about to get the proceeds from selling USA home, move to UK and set up the pipeline that funds my expenses I wanted to ask. I wonder if I am missing a trick or even something obvious?. The mortgage offset account is a variable interest rate currently around 4%.

Any advice from the wise crowd?
« Last Edit: June 13, 2018, 06:40:45 PM by celticblue »

Grogounet

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Re: Using an offset mortgage to advantage in FIRE
« Reply #1 on: June 13, 2018, 07:36:20 PM »
Hello there. Do you intend to live in this house as your PPOR?

celticblue

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Re: Using an offset mortgage to advantage in FIRE
« Reply #2 on: June 13, 2018, 08:17:29 PM »
Yes. I will be living in the home with the offset mortgage as my primary, and only , residence

SwordGuy

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Re: Using an offset mortgage to advantage in FIRE
« Reply #3 on: June 13, 2018, 09:19:00 PM »
I'm really envious about offset accounts.   

I wouldn't put that much in an offset account if I thought I could get significantly more by investing it in, say, Vanguard's VTSAX and VTIAX.

I would put my cash emergency fund in it because, hey, a 4% fixed return is pretty good when you need the advantages of cash flexibility and security.

But $200,000 is an awful lot of cash, particularly when it could be earning 10% on average elsewhere.

Unless I knew of a specific need for that much cash, I would put all but the cash portion of my emergency fund in the market.

celticblue

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Re: Using an offset mortgage to advantage in FIRE
« Reply #4 on: June 13, 2018, 11:28:21 PM »
So, would it make more sense to forget about having 3 years expenses in a CD, put that same money in the market and then just withdraw from the mortgage offset account to cover the 2-3 years of a bear market if it happens ?
Would this in itself be my protection for sequence of returns risks over this first 10 years of Fire as we crest on the second longest bull market?

Grogounet

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Re: Using an offset mortgage to advantage in FIRE
« Reply #5 on: June 13, 2018, 11:42:13 PM »
How many months / years of expenses would you have saved on the offset in an ideal scenario?

celticblue

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Re: Using an offset mortgage to advantage in FIRE
« Reply #6 on: June 14, 2018, 07:35:14 AM »
In my mind I think 3 years would get me through the worst part of a bear market. i have approx 3 years equivalent of expenses in my offset account

Grogounet

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Re: Using an offset mortgage to advantage in FIRE
« Reply #7 on: June 14, 2018, 08:42:10 PM »
[Only my opinion]
I think then this money parked on the offset is just fine. 3 years worth of life expenses is a lot ! But if it's what's helping you sleeping at night then this is the right decision.