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Old April 14th 04, 12:02 PM posted to uk.finance
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Default What's the difference between an offset mortgage and one in whichyou simply overpay? And other questions

I'm looking around for remortgaging deals having finished my "Charcol
insipred" Woolwich discounted variable rate. I tend to have a large
amount of money (typically about what I spend on the mortgage, so
effectively I could double my mortgage spend) after the end of the
month, so I was thinking of putting this to good use by overpaying.

Are there any resources which would give me a guide as to whether this
is even a good idea or not, compared to sticking it in a high interest
account? Naturally this depends on tax etc, I'm a higher rate tax payer.

What would be the benefit of going for a full merged account (or offset,
I believe there are differences) over a "normal" account and just
overpaying?

The other thing is that I currently have an interest only mortgage, I'd
like to continue that style if possible.

I was thinking of doing this research and if necessary using this in
preparation for talking to my long standing IFA.

Ta, Dan

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Old April 14th 04, 12:28 PM posted to uk.finance
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Default What's the difference between an offset mortgage and one in which you simply overpay? And other questions

"Dan Gravell" wrote in message
...

What would be the benefit of going for a full merged account (or offset,
I believe there are differences) over a "normal" account and just
overpaying?


I have an interest only mortgage and make the odd overpayment when I have a bit of
spare cash, but the difference must be that I can't get any of that overpayment
back in case of a "rainy day" whereas if I had the offset savings/loan deal then
it could be drawn up on if need be, but then there's the temptation to spend it on
non essential things, so it might not be such a good idea.

First Direct seem desperate for me to have their offset mortgage judging by the
huge amount of junk mail they send me promoting it!


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Old April 14th 04, 12:36 PM posted to uk.finance
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Default What's the difference between an offset mortgage and one in which you simply overpay? And other questions

Bitstring , from the
wonderful person Dan Gravell said
I'm looking around for remortgaging deals having finished my "Charcol
insipred" Woolwich discounted variable rate. I tend to have a large
amount of money (typically about what I spend on the mortgage, so
effectively I could double my mortgage spend) after the end of the
month, so I was thinking of putting this to good use by overpaying.

Are there any resources which would give me a guide as to whether this
is even a good idea or not, compared to sticking it in a high interest
account? Naturally this depends on tax etc, I'm a higher rate tax payer.


You just need to know how much interest 1000 overpaid on your mortgage
saves you, vs how much (net) you'd get if you put 1000 in the best
savings a/c you can find (currently 4.5% gross, with ING, probably).

If you are a higher rate tax payer, you almost certainly do better not
paying interest than you do earning it. However you need to check the
rates on 'merged accounts' .. i.e. if they're going to charge you 7% for
your 200k mortgage vs 6% for a 'normal' mortgage, you're never going to
make up the difference (2k/year) by saying 'whee, I made 10 more by
paying off some mortgage than I would have by saving with ING.

What would be the benefit of going for a full merged account (or
offset, I believe there are differences) over a "normal" account and
just overpaying?


You can get the overpayment back out again with a merged account. To do
that with a normal account probably involves copious negotiations with
the lender.

The other thing is that I currently have an interest only mortgage, I'd
like to continue that style if possible.


Then you have a problem if you want to get the overpayment out ..
they're going to expect you to pay at least the interest, and there is
no facility for paying less, and certainly none for saying 'I want that
1k I over-paid last month back again, please send me a cheque'.

--
GSV Three Minds in a Can
Outgoing Msgs are Turing Tested,and indistinguishable from human typing.
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Old April 14th 04, 12:40 PM posted to uk.finance
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Default What's the difference between an offset mortgage and one in which you simply overpay? And other questions

Dan Gravell wrote:

I'm looking around for remortgaging deals having finished my "Charcol
insipred" Woolwich discounted variable rate. I tend to have a large
amount of money (typically about what I spend on the mortgage, so
effectively I could double my mortgage spend) after the end of the
month, so I was thinking of putting this to good use by overpaying.

Are there any resources which would give me a guide as to whether this
is even a good idea or not, compared to sticking it in a high interest
account? Naturally this depends on tax etc, I'm a higher rate tax payer.


Yes, it is a good idea. Assuming the mortgage in question is for your
own home, as opposed to a buy-to-let, the effect of paying a pound off
your (say 6%) mortgage is to save you 6p of real (after-tax) money in
loan interest each year. But the effect of putting a pound into a
high-interest account (at say 5%) is to give you only 3p a year after
tax. There is simply no contest.

What would be the benefit of going for a full merged account (or offset,
I believe there are differences) over a "normal" account and just
overpaying?


There may be limits to how often or how much a normal account will
let you pay off, but that apart, it's likely to be better than offset
accounts because the interest rate on offset accounts tends to be rigged
so as to cost you more. The same is probably true of "flexible" accounts,
where you can take the overpayments back out again at the drop of a hat
when that Ferrari beckons.

The other thing is that I currently have an interest only mortgage, I'd
like to continue that style if possible.


That's OK, but it means that any overpayments will be sporadic and be
initiated by you each time. If you have regular spare cash, it may
reduce your (and your lender's) administrative burden if you simply
changed to a repayment model, with the term length tuned to give just
the right level of monthly overpayment.

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Old April 14th 04, 01:02 PM posted to uk.finance
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Default What's the difference between an offset mortgage and one in whichyou simply overpay? And other questions

Thanks for your informative reply.

There may be limits to how often or how much a normal account will
let you pay off, but that apart, it's likely to be better than offset
accounts because the interest rate on offset accounts tends to be rigged
so as to cost you more. The same is probably true of "flexible" accounts,
where you can take the overpayments back out again at the drop of a hat
when that Ferrari beckons.


Yeah - in many ways this is what I want to hear, because to me the work
involved in signing up to one of these new fangled offset things,
changing current account etc, would make it all a bit of a bind. A
standard "flexible" deal would be better but as you say I may be paying
a premium once again. I think this is a case where I need to scour the
details for each product.

That's OK, but it means that any overpayments will be sporadic and be
initiated by you each time. If you have regular spare cash, it may
reduce your (and your lender's) administrative burden if you simply
changed to a repayment model, with the term length tuned to give just
the right level of monthly overpayment.


I had a chat with my current lender about my current product and they
said I could just set up a standing over with the overpayment. The extra
figure above the interest would bite into the outstanding debt.

I guess I also need to watch out that the interest is calculated daily
(as this would make a bit of a nonsense of regular overpayments
otherwise). Would the interest paid come down each month too?

Dan


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Old April 14th 04, 01:05 PM posted to uk.finance
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Default What's the difference between an offset mortgage and one in whichyou simply overpay? And other questions

Thanks for the reply

Then you have a problem if you want to get the overpayment out ..
they're going to expect you to pay at least the interest, and there is
no facility for paying less, and certainly none for saying 'I want that
1k I over-paid last month back again, please send me a cheque'.


I'm not that bothered, at this moment in time, about reclaiming previous
overpayments. I am financially disciplined, but I see such constraints
as a help in many ways.

But I say "at this moment" because I guess, if I got a discounted
flexible product and overpaid, I could remortgage when the discount
period ended switching to an account that allowed reclamations if I saw
something afoot in the medium term.

Although I guess these things aren't always visible in the medium term

Dan
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Old April 14th 04, 03:04 PM posted to uk.finance
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Default What's the difference between an offset mortgage and one in which you simply overpay? And other questions

Dan Gravell wrote:

I had a chat with my current lender about my current product and they
said I could just set up a standing over with the overpayment. The extra
figure above the interest would bite into the outstanding debt.


That's good.

I guess I also need to watch out that the interest is calculated daily
(as this would make a bit of a nonsense of regular overpayments
otherwise).


Quite.

Would the interest paid come down each month too?


It should do, but that doesn't necessarily mean the payment requested
comes down, since many lenders revise the amounts requested less
frequently, though the excess would just reduce the capital instead.

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Old April 14th 04, 03:23 PM posted to uk.finance
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Default What's the difference between an offset mortgage and one in whichyou simply overpay? And other questions


It should do, but that doesn't necessarily mean the payment requested
comes down, since many lenders revise the amounts requested less
frequently, though the excess would just reduce the capital instead.


Of course. Something to double check though.

Thanks, Dan

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Old April 14th 04, 06:20 PM posted to uk.finance
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Default What's the difference between an offset mortgage and one in which you simply overpay? And other questions


"GSV Three Minds in a Can" wrote in message
...
The other thing is that I currently have an interest only mortgage, I'd
like to continue that style if possible.


Then you have a problem if you want to get the overpayment out ..
they're going to expect you to pay at least the interest, and there is
no facility for paying less, and certainly none for saying 'I want that
1k I over-paid last month back again, please send me a cheque'.


I've got an interest only mortgage with Nationwide and I can get my overpayments
back whenever I want, or take payment holidays till my "overpayment reserve" is
used up.

--
Andy





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Old April 14th 04, 06:40 PM posted to uk.finance
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Default What's the difference between an offset mortgage and one in which you simply overpay? And other questions


"Dan Gravell" wrote in message
...
I'm looking around for remortgaging deals having finished my "Charcol
insipred" Woolwich discounted variable rate. I tend to have a large
amount of money (typically about what I spend on the mortgage, so
effectively I could double my mortgage spend) after the end of the
month, so I was thinking of putting this to good use by overpaying.


A lot of remortgage deals limit the amount (or ban) overpayments, so if you want
to overpay you may not get as good a rate. I found Nationwide's tracker a good
compromise, 0.01% below the BOE rate for 2 years and they allow overpayments up
to 500 a month. And you can withdraw overpayments whenever you want.

Are there any resources which would give me a guide as to whether this
is even a good idea or not, compared to sticking it in a high interest
account? Naturally this depends on tax etc, I'm a higher rate tax payer.


In general it is daft to have savings on which you pay tax (esp higher rate) at
the same time as a debt (like a mortgage) on which you don't get tax relief.
There are exceptions though, eg if you get a good 2 year deal which doesn't
allow overpayments during the term, but does afterwards, it may be better to
save for two years and then plough your savings into your mortgage.

What would be the benefit of going for a full merged account (or offset,
I believe there are differences) over a "normal" account and just
overpaying?


If you want instant access to your overpayments go for offset. If you don't mind
waiting a week or so you could go for a flexible mortgage (eg Nationwide). If
you don't think you'll need the overpayments back then just overpay, if you do
need the money back you'll have to remortgage which could take a while and be a
hassle (or not even possible if house prices crash).

A disadvantage of offsetting (compared with flexible mortgages or simply
overpaying a normal mortgage) which hardly ever seems to get a mention is the
effect on benefits. If you lose your job but have savings you may not be able to
get benefits. If you have no savings because you've used all your spare cash to
overpay your mortgage, you shouldn't be disqualified from means tested benefits
(equity in your house doesn't count). You may even be able to withdraw
overpayments to top up your benefits! (although this could reduce your benefits
depending on the interpretation of the benefit rules).

--
Andy





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