Offset Mortgage

[Rightflyer]

Can someone please explain an offset mortgage to me?

It seems too simple (and too good to be true in our particular case) if I am understanding it at all.

What are the benefits and downsides?

And have you actually had one...?

[NearlyThere]

Yes I had one for 10 years, concluded this year.

Think of it as a savings account linked to your mortgage. The more in your savings account, the less interest you pay.

Your effective interest rate earned = your mortgage rate. So guaranteed 2-5% whatever you mortgage rate is.

The main benefit for me was the money being accessible the entire time. So I had everything I'd put in available for use at a moments notice.

The downside is that you always feel cash rich and so if you're inclined (or your partner) to spend, might be too much of temptation.

At the start you'd see only a few pounds off your mortgage each month but as that grows and if you still effectively over contribute to your mortgage your saving rate grows exponentially.

At the end of our deal we could continue on variable rate for 15 years, take out new deal at current interest rates or pay off the mortgage. We paid it off.

[UKstache]

I've got 2. I like them as a great way of saving and paying less interest. You will generally pay a higher arrangement fee or interest rate for the privilege. However, you might be better off investing the money over the long term. I did not understand index investing when I took out those mortgages.

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[Rightflyer]

Yes I had one for 10 years, concluded this year.

Think of it as a savings account linked to your mortgage. The more in your savings account, the less interest you pay.

Your effective interest rate earned = your mortgage rate. So guaranteed 2-5% whatever you mortgage rate is.

The main benefit for me was the money being accessible the entire time. So I had everything I'd put in available for use at a moments notice.

The downside is that you always feel cash rich and so if you're inclined (or your partner) to spend, might be too much of temptation.

At the start you'd see only a few pounds off your mortgage each month but as that grows and if you still effectively over contribute to your mortgage your saving rate grows exponentially.

At the end of our deal we could continue on variable rate for 15 years, take out new deal at current interest rates or pay off the mortgage. We paid it off.

Thanks for that.

I'm playing with the idea of what to do with our cash.

Almost like a pseudo "bonds" (fixed income) component of our portfolio.

I'll have to do more research.

[Rightflyer]

I've got 2. I like them as a great way of saving and paying less interest. You will generally pay a higher arrangement fee or interest rate for the privilege. However, you might be better off investing the money over the long term. I did not understand index investing when I took out those mortgages.

Sent from my Moto G (5) using Tapatalk

Well, we are roughly 85% equities and 15% cash right now in our total portfolio so this may be the answer of where to park cash.

Or am I missing something?

[UKstache]

I've got 2. I like them as a great way of saving and paying less interest. You will generally pay a higher arrangement fee or interest rate for the privilege. However, you might be better off investing the money over the long term. I did not understand index investing when I took out those mortgages.

Sent from my Moto G (5) using Tapatalk

Well, we are roughly 85% equities and 15% cash right now in our total portfolio so this may be the answer of where to park cash.

Or am I missing something?

Always depends on exactly what options are open to you and your attitude to risk. But yes, if you want to hold cash it might be a good way. You get liquidity with (generally speaking) a better interest rate than on a savings account.

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[PhilB]

The added bonus is that if and when you do decide to 'pay it off', you can do that by just putting enough in the offsetting accounts to net the balance to nil, rather than actually paying off and closing the mortgage (assuming your mortgage term hasn't finished).  You are then left with a nice little line of low interest credit which goes a long way to removing the need for an emergency fund.  I've been in that position for about 6 years now.

[Rightflyer]

The added bonus is that if and when you do decide to 'pay it off', you can do that by just putting enough in the offsetting accounts to net the balance to nil, rather than actually paying off and closing the mortgage (assuming your mortgage term hasn't finished).  You are then left with a nice little line of low interest credit which goes a long way to removing the need for an emergency fund.  I've been in that position for about 6 years now.

Oh I like that.

Lot's of possibilities there.

Thank PhilB

[Playing with Fire UK]

I've got 2. I like them as a great way of saving and paying less interest. You will generally pay a higher arrangement fee or interest rate for the privilege. However, you might be better off investing the money over the long term. I did not understand index investing when I took out those mortgages.

I've found they can be picky about who they'll accept as well. You effectively need to qualify for an interest-only mortgage.