Hello and thanks for looking.
I'm considering an offset mortgage and looking for a bit of a sanity check please.
Complete strangers tend to be a little more impartial than friends on this sort of thing, so here goes:
I'm 34yrs with a mortgage currently of 118K on a valve of 175k for the house with 31yrs left to run.
I have exited from a 2yr fix with my bank. I benefited from a first time buyer savings account on condition of taking their mortage which paid out 5K.
I finished the 2yr initial deal in November 2012, however the standard rate is less than the fixed rate so it has not been an urgent requirement to move.
I took the mortage out at 33yr span as I felt that no matter what happened I would always be able to find the money for this - thus negating the need for mortgage protection insurance.
If I were to die, my employer will pay 3 times salary and that will happily cover the mortgage. There is no other debt.
It started at 75% LTV and I have been overpaying every month to bring it down from 131K to 118K now. Due to the 33yr term the plan was to always make a minimum payment with the aim of clearing it in 25yrs, but I've been able to overpay beyond that and also put 500/month into savings.
My savings are split between various locations:
£17K in basic bank savings - was on a reasonable rate which has ended.
£23K in ISA's - not the leading rate - was started as a pension pot whilst at a previous employer that I didn't expect to stay with for long, but did.
£15K+ earned interest in NS&I inflation tracker 3/5year bond - cant remember which period, taken May 2011
So call it a total of £57K for the sake of arguement (as all figures above are rounded down and growing daily).
I intend to sacrifice the ISA's as they are below the interest rate of the mortgage - even looking at better deals, but considering liquidity too thus avoiding bonds. The NS&I, possibly not due to its performance.
I'm looking at taking a 5yr fixed offset. 3.49% with legal and valuation paid, and a £295 product fee. I will also be moving my banking from my current provider to allow my current account to be offset too (this is a lazy way around watching my account balance like a hawk).
I would intended to remortage to remove the equity back up to 75% LTV and leave this in the offset savings account.
So it would be a £131K mortgage with £70K on offset.
On paper I am a 40% tax payer, however due to pension contributions (14% of salary plus additional 6% by employer) and child care vouchers; none of my income is taxed at 40%.
After ALL bills and expenses (and several years experience of living within this sort of budget) I will be able to contribute £500/month to the offset in addition to that which is already there and also overpay to 25yr period; but taking it out at a longer 36yr period for the same safety net as before. Inflation in bills will be matched by wage inflation for this calculation.
This contribution may reduce slightly as I wish to start a pension for my child - topic of another thread.
I am planning an extension to my property. This is likely to cost in the order of £40K (accurate figure, potential 4K overshoot for fancy fixtures) which I would take from the offset.
I would expect that the valuation of the property after this work will be no more than £200K - effectively negative equity if you want to look at it that way.
My family like our location and have been looking for alterternative properties but it is not possible to find something suitable verses extending beyond the market value for this type of house.
Eventually this would be absorbed by inflation - but we are extending with the intention not to move; this means it ticks 99% of the boxes.
Would expect the building work to be complete by end of year 2 of the mortgage, leaving 42K offset (70K - 40K + 500/month for 2yrs).
At the end of the 5yr fixed offset, I would remortgage to the same LTV bearing in mind the higher value, and offset the full amount once again to remain liquid - with the then intention of looking for rental property(s) depending on the market of course.
This is in relation to my late start of a pension pot. Any wage increases are also going into my pension.
So that's pretty much all my financial info on the internet now !!
Due you think the offset is the correct choice for me?
Is sacrificing the ISA's worth it? earning 3% verses offesetting 3.49%
May not scrifice the NS&I as it's currently earning above 3.49% tax free.
Should I instead be looking at normal fixed rates and savings (bonds & populating this year's ISA) ? - less interest to pay on the mortgage, but less interest paid on the savings.
I appreciate that it is worth knocking this all into a spreadsheet and comparing against when the extension money is taken out of the equation; fixed verses offset. I've run a few numbers but not fully put it down.
However there is more consideration than the yes/no of pure numbers.
I wish to remain liquid - so going up to 40% LTV is possible, but no further than that - even then I dislike the idea (perhaps irrationally).
The eventual aim is to pay off the mortage in around 15-18 years from now and ideally have some savings too (life/work balance etc). Which is why I'm interested in offset and not just overpaying like crazy every month.
Is there an elephant in the room which I have not considered ?
I'm considering an offset mortgage and looking for a bit of a sanity check please.
Complete strangers tend to be a little more impartial than friends on this sort of thing, so here goes:
I'm 34yrs with a mortgage currently of 118K on a valve of 175k for the house with 31yrs left to run.
I have exited from a 2yr fix with my bank. I benefited from a first time buyer savings account on condition of taking their mortage which paid out 5K.
I finished the 2yr initial deal in November 2012, however the standard rate is less than the fixed rate so it has not been an urgent requirement to move.
I took the mortage out at 33yr span as I felt that no matter what happened I would always be able to find the money for this - thus negating the need for mortgage protection insurance.
If I were to die, my employer will pay 3 times salary and that will happily cover the mortgage. There is no other debt.
It started at 75% LTV and I have been overpaying every month to bring it down from 131K to 118K now. Due to the 33yr term the plan was to always make a minimum payment with the aim of clearing it in 25yrs, but I've been able to overpay beyond that and also put 500/month into savings.
My savings are split between various locations:
£17K in basic bank savings - was on a reasonable rate which has ended.
£23K in ISA's - not the leading rate - was started as a pension pot whilst at a previous employer that I didn't expect to stay with for long, but did.
£15K+ earned interest in NS&I inflation tracker 3/5year bond - cant remember which period, taken May 2011
So call it a total of £57K for the sake of arguement (as all figures above are rounded down and growing daily).
I intend to sacrifice the ISA's as they are below the interest rate of the mortgage - even looking at better deals, but considering liquidity too thus avoiding bonds. The NS&I, possibly not due to its performance.
I'm looking at taking a 5yr fixed offset. 3.49% with legal and valuation paid, and a £295 product fee. I will also be moving my banking from my current provider to allow my current account to be offset too (this is a lazy way around watching my account balance like a hawk).
I would intended to remortage to remove the equity back up to 75% LTV and leave this in the offset savings account.
So it would be a £131K mortgage with £70K on offset.
On paper I am a 40% tax payer, however due to pension contributions (14% of salary plus additional 6% by employer) and child care vouchers; none of my income is taxed at 40%.
After ALL bills and expenses (and several years experience of living within this sort of budget) I will be able to contribute £500/month to the offset in addition to that which is already there and also overpay to 25yr period; but taking it out at a longer 36yr period for the same safety net as before. Inflation in bills will be matched by wage inflation for this calculation.
This contribution may reduce slightly as I wish to start a pension for my child - topic of another thread.
I am planning an extension to my property. This is likely to cost in the order of £40K (accurate figure, potential 4K overshoot for fancy fixtures) which I would take from the offset.
I would expect that the valuation of the property after this work will be no more than £200K - effectively negative equity if you want to look at it that way.
My family like our location and have been looking for alterternative properties but it is not possible to find something suitable verses extending beyond the market value for this type of house.
Eventually this would be absorbed by inflation - but we are extending with the intention not to move; this means it ticks 99% of the boxes.
Would expect the building work to be complete by end of year 2 of the mortgage, leaving 42K offset (70K - 40K + 500/month for 2yrs).
At the end of the 5yr fixed offset, I would remortgage to the same LTV bearing in mind the higher value, and offset the full amount once again to remain liquid - with the then intention of looking for rental property(s) depending on the market of course.
This is in relation to my late start of a pension pot. Any wage increases are also going into my pension.
So that's pretty much all my financial info on the internet now !!
Due you think the offset is the correct choice for me?
Is sacrificing the ISA's worth it? earning 3% verses offesetting 3.49%
May not scrifice the NS&I as it's currently earning above 3.49% tax free.
Should I instead be looking at normal fixed rates and savings (bonds & populating this year's ISA) ? - less interest to pay on the mortgage, but less interest paid on the savings.
I appreciate that it is worth knocking this all into a spreadsheet and comparing against when the extension money is taken out of the equation; fixed verses offset. I've run a few numbers but not fully put it down.
However there is more consideration than the yes/no of pure numbers.
I wish to remain liquid - so going up to 40% LTV is possible, but no further than that - even then I dislike the idea (perhaps irrationally).
The eventual aim is to pay off the mortage in around 15-18 years from now and ideally have some savings too (life/work balance etc). Which is why I'm interested in offset and not just overpaying like crazy every month.
Is there an elephant in the room which I have not considered ?