Dingdongler

Hello.

I've never had an offset mortgage before and haven't had a mortgage of any kind for years.I'm thinking of buying a new family home and keeping my present one until the former is refurbed and ready to live in.

I will therefore need a mortgage but only for a year or so. A proportion of it I will need in stages to carry out the work so an offest seems to make sense.

There is one thing I find confusing. I would have thought that I could pay the money back at any time ie I borrow £100000, after a year I sell the old house put the £100000 back into the account and hey presto I'm done.

However having a quick read of the Woolwich offest product it says '1% of the original amount borrowed to be paid if you redeem in full before 2013'

What does that mean? Does that mean I can't just put the whole amount borrowed back into the account and bring my payments to zero?

btw, I will and am taking 'professional' financial advice, but those sorts are always trying to sell me something so I like to keep my contact with them minimal.

Thanks

MattW

Some mortgage products have a redemption fee, some don't. I know FirstDirect doesn't for example. Those that do are likely to have an added incentive such as a discount for a set period, they may also allow you to repay a %age a year without penalty.

Dingdongler

Matt, thats not an offset mortgages you are talking about though is it? I understand that there will be a lock in period for any discounted or capped rate and that some allow you to pay down a percentage every year without penalty.

However, an offset mortage should by definition mean that I can put any amount into the account and then I won't pay interest on that amount. So if I were to put the whole amount back in there should be zero payment.
So why does the Woolwich offset mortagage say that I can't redeem in full until 2013 without penalty??

hodgy0_2

Dong - when we bought a house 10 odd years ago we took out a draw down mortgage

so we used 250k to buy the house -- but had a facility for 90k of additional borrowings to use as and when needed

but we only paid interest in the initial 250k -- and then what ever we used was added to the loan/interest

Midlife......

iTrader: (2)

I thought an offset mortgage was just like one huge big **** off overdraft which you paid interest on untill the loan amount was paid off.

I was sorely tempted to get one for my last mortgage but I felt I didn't have the discipline to pay it off LOL

Shaun

Dingdongler

Maybe I being thick or unclear with my question. What I want to know is this; If I take £100k on an offset mortgage and in a years time put £100k back into the mortgage account is that the end of the matter? Should there be any sort of redemption penalty with an offset mortage?

Thanks

[-(o)-]

iTrader: (1)

Sounds like a typical early repayment type penalty. If I pay off more than 10% of my tracker mortgage in either of the first two years I have to pay an extra charge. Yes its unreasonable from our point of view, but I guess its just ensuring the banks investment. They're expecting x amount off you and they won't get it all if you pay it off early.

Kiwi

With first direct if you have 100k mortgage you then pay the 100k into your current account which means you pay zero interest on the mortgage as the 100k is offset it. But you have access to your 100k at all times.

Midlife......

iTrader: (2)

Britannia Offset Mortgage Savings | Reviewed by Mortgage Experts

There appears to be no redemption fee with the above..........it's just the arrangement fee that will make your nose bleed LOL

Shaun

stilover

I had a Woolwich offset Mortgage, but it had no redemption fee, or in fact an arrangement fee. Only fee was £150 to my Financial adviser

Obviously the way thing are now, that's changed.

I think they are a great way to pay your mortgae. I was topping up my account every month meaning less interest being payed on the Mortgage itself. Once there was enough cash in the account, paid it off.

I had a £20k extra borrowing option on mine, but never used it.

You can either use an Offset Mortgage to reduce the life of the Mortgage or use it to lower your monthly payments.

Dingdongler

Thanks, thats how I thought offset mortgages worked. If you have a look at the link below there are redemption charges, which I just don't understand with an offset mortgage.

Mortgages – Offset Mortgages – Woolwich mortgages from Barclays

Dark

iTrader: (1)

You don't want an offset morgage, you want a current account mortgage.

Virgin One account - Online service

Interest rates are a bit higher but no setup or redemption fees and total flexibility to payback as little or as much as you want.

Mark

scoobyster

With mine (YBS) you can offset 'savings' up to equal to the amount you have borrowed and they cancel out the interest on that portion of your mortage. When you get to parity, you have effectively paid off the mortgage, but still have access to the savings if needs be. You can avoid having to pay early redemption fees by just keeping your 'free' mortage. They still want the monthly payment as if it were a normal mortgage, but you can set that up to come out of your offset savings, so you'll just gradually pay it off in line with your 25 year (or whatever) terms.

Terminator X

iTrader: (7)

Leave a £1 in there until 2013 rather than pay off the full £100k

TX.

njkmrs

Used to have a Yorkshire Bank one account .If my house was worth say £100k ,they would let me borrow upto £80k .I could write a cheque for anything I wanted upto this value and kind of go into overdraft scenario .I would make a monthly payment and the amount I could borrow would reduce accordingly ,therefore paying off the £80k over the 25 yrs or whatever term was agreed .So month 2 I would only be able to borrow say £79900 etc etc .So in effect you still pay off the mortgage over time .If you did not use it then the amount you could borrow each month would still subside over the term agreed .
There was a set up fee of few hundred I think and a small closure fee .
You pay interest each month depending on how much into this overdraft/mortgage you are .

Hope this makes sense for you .
You had to pay salary into this account each month ,was one of the stipulations,this would reduce what you owed each month until you paid your bills etc or blew it !!!