How Does An Offset Mortgage Work

[tgm1974]

How does an offset mortgage work?

We have £108k outstanding at present and about to receive £80k from part sale of an old property. I can't get my head around it to fathom out which way to help us save money and have money, at the same time!!

[BRIGHT SPARK]

Put the £80k into one of the savings pots linked to the offset mortgage.You receive no interest on the £80k but you will then only be charged interest on the £28k outstanding.If you need access to the £80K the interest is re-calculated on a daily basis.

[woofgang]

We looked into this with Virgin a few years ago now. To their everlasting credit, the advisor we spoke to asked us what king of mortgage we had, how long it had to run and how much was it and then told us not to go with them as it would cost us money. I can't remember the details now so I would advise that you go and talk to several organisations who offer this and then have a good think.

some more info here
https://www.moneyadviceservice.org.uk/en/articles/mortgage-special-features

and lots of stuff about mortgages in general

[bednobs]

in essence, it's like you "paid off" 80k of your mortgage, but the money is still there if you need it (but say you take out 20k because you need it, you'll start to be charged interst on 48k rather than 28k)
as it's so much money (to me anyway!) would it be worth paying a financial advisor to advise you? It's not that expensive

[tgm1974]

Thanks for your replies guys .... but if either myself or my husband died tomorrow then would i still have a full mortgage to pay off or 28k?

[BRIGHT SPARK]

The mortgage would need to have a life insurance policy in place for the original £108k.

[woofgang]

28 k if you wanted to give up the 80 k in savings or the full amount if you wanted to retain the savings, less of course any payments made. The individual mortgage sellers might have different rules though and if the money isn't in a joint account, the savings might have to go into the inheritance pot, so you'd need to look into that, also what the mortgaging organisation would anyway do if the mortgage holder died.

[chas2008]

shows a demo-

http://www.if.com/myifdotcom/seeifcansave.aspx

[Peter Pedant]

You pay a bit more for an offset but the idea is that money is available if you need it, as others have said.

You need to ask the Bank who are offering you the mortgage.

I had a terrible time with RBS with a 150k mortgage.
and paid off £100k just as you are planning to do

and asked the clerk what my monthly payments went down to
and No 1 said i dont know I dont do mortgages
At least he was telling the truth - I have respect for people who say 'there is no one here who will help you.' The statement is usually 100% true and 100% accurate.
and No 2 said: Oh it doesnt ! we go on taking £450 out of your account !
So naturally I asked what the point of the mortgage was - and she DIDN'T say oh more money for us !
and No 3 said ah, no reduction, it is just that the £450 pays off more of the capital amount than it did.
and I said: but this is an interest only mortgage
and so to her credit she said, oh I dont know then - I think you have to negotiate and remortgage.

I paid off the whole sum.

and they never sent me a how-did-we -do questionnaire - I thought because they knew how they had done.

So when you apply, make sure you ask all the right questions.