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Offset Mortgage 10 Yr Fixed

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I'm starting to look at mortgage options ready for buying in the spring (at the earliest).

Yorkshire building society do a 10 yr fixed which is offset. The interest rate is not the best (4.54%), but as I would save £200 a month into the linked savings, I would bring the amount of interest paid down.

Would appreciate people's thoughts on this.

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If you go to excel and select a new amortisation template you can model your various mortgage options.

Obviously its made tricky by banks due to initial fees and your view of possible interest rate rises.

Historically an interest rate of less than 5℅ is meant to be great over 25 years. But if we are heading for Japan style stagnation post house price rise then it isn't great.

I would only go for it if I had a substantial lump sum that I could put into the linked account thereby earning 4.5 + tax on my savings risk free. Otherwise you could just overpay your mortgage more if you had a lower rate. Depending on how much you borrow and expected savings rate the answer will be different

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I'm starting to look at mortgage options ready for buying in the spring (at the earliest).

Yorkshire building society do a 10 yr fixed which is offset. The interest rate is not the best (4.54%), but as I would save £200 a month into the linked savings, I would bring the amount of interest paid down.

Would appreciate people's thoughts on this.

Being risk averse myself, I did have a look into this one too. They seem to want 4.54% for offset vs 4.34% for plain fixed at the moment, which is 4.54/4.34 = 1.046 times as expensive. So unless I'm much mistaken, you'll hit price-parity with the plain fixed once you have 5% of the borrowed amount in savings. You can either do that with a lump sum at the start, or plan to save up 10% of the initial amount by the end of the 10 year term (averages out the same if you save at a constant rate)...

I didn't like the look of the early repayment charges though - so went with the 5 year one instead, but the product fee is rather eye watering!

My plan is to basically offset every penny I earn until I need to actually spend it on something - if I've understood it right, £500 in the offset account all month has the same effect as £1000 that's in from pay day until 15th and then goes out on bills etc - or even the mortgage itself.

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I hope to take a £150k mortgage, but with £100k of savings offset against it. These are family member's savings, so I don't have the option to just take a smaller mortgage.

I would probably "pay" them a 1.5% year interest fee, which is still cheaper than paying 4% on the mortgage debt. Yorkshire building society have an offset plus whereby family members savings accounts are linked to your mortgage.

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Sounds like a pretty good plan to me, as long as you don't become unstuck if your family members take their 100K away, and you don't increase the savings pool so much that it matches the loan size. IIRC they can ask for their money back early if you get to the point where you'd pay no interest at all.

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Sounds like a pretty good plan to me, as long as you don't become unstuck if your family members take their 100K away, and you don't increase the savings pool so much that it matches the loan size. IIRC they can ask for their money back early if you get to the point where you'd pay no interest at all.

Hmmm... I will check what is the most savings you can link before they ask for the mortgage to be repaid.

In my mind, if I borrow £150k at 4%, but have £100k offset against it, I'm actually only paying 1.33% on the mortgage? is that right?

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In my mind, if I borrow £150k at 4%, but have £100k offset against it, I'm actually only paying 1.33% on the mortgage? is that right?

That is my understanding of the offset. You still owe them 150K, and they use that number for LTV's, but they work out the interest as (remaining_loan - offset_savings) * interest_rate. So you are really paying 4% on 50k, which feels the same as 1.33% on 150k.

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That is my understanding of the offset. You still owe them 150K, and they use that number for LTV's, but they work out the interest as (remaining_loan - offset_savings) * interest_rate. So you are really paying 4% on 50k, which feels the same as 1.33% on 150k.

Almost.

You should also factor in that the £100k would, in a bank, have earned maybe 1.5% so £1500 minus income tax so the difference shrinks marginally.

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