Offset Mortgages

[slapmatt]

I'm currently on the HSBC SVR of 5.7%APR. I'm considering an offset mortgage, the deal I'm looking at is a base-rate tracker with Melton Mobrey BS - this should cut my monthly payment by about £50. Nice.

Firstly, does anyone have any good/bad experiences or comments regarding offset mortgages?

Secondly, I realise that any money I offset against my mortgage will not be earning me any interest. Is this a problem? I have recently been pushed into the highest rate of income tax - does this mean that any interest earned on savings will now be taxed at 40%?

[alltorque]

Your money won't make interest per se, but it will correspondingly save you money in the long run because it will be reducing interest payments on your mortgage. Because you then don't pay tax on that interest saved it's a win-win, because the interest rate on your mortgage is often higher than what you would get in a savings account.

That's the way I look at it anyhow.

[JonRB]

Offset Mortgages are great if you have savings and low debt, because the money you save on your mortgage payments by having your savings offset against the mortgage is much greater than the interest you would have accrued on those savings. And you'd pay tax on that too, so it is a good tax mitigation strategy too.

If you don't have much (or any) savings then there isn't a lot of benefit, in my opinion.

Edit: Damn - beaten to it by a matter of seconds.

>> Edited by JonRB on Wednesday 11th January 15:17

[alltorque]

JonRB said:

Offset Mortgages are great if you have savings and low debt, because the money you save on your mortgages payments by having your savings offset against the mortgage is much greater than the interest you would have accrued on those savings. And you'd pay tax on that too, so it is a good tax mitigation strategy too. If you don't have much (or any) savings then there isn't a lot of benefit, in my opinion.

I doff my cap to you sir!

[timmy30]

slapmatt said:

I have recently been pushed into the highest rate of income tax - does this mean that any interest earned on savings will now be taxed at 40%?

Yes interest on savings will be added to the top slice of your earnings and taxed at 40%. Welcome to the happy world of self assesment by the way.

>> Edited by timmy30 on Wednesday 11th January 15:18

[JonRB]

alltorque said:

I doff my cap to you sir!

No, no, I doff mine to you - you said the same thing and got in there first.

[JonRB]

timmy30 said:

Yes interest on savings will be added to the top slice of your earnings and taxed at 40%.

So all the more reason to offset the savings against your mortgage!

They really are brilliant, providing you have savings and no other debt.

(If you have savings and other debt, then you should really pay off the debt with the savings as you'll be better off)

[alltorque]

JonRB said:

alltorque said: I doff my cap to you sir! No, no, I doff mine to you - you said the same thing and got in there first.

Look, just allow me this one doff will you. I don't doff every day whatever some people say

[slapmatt]

Thanks for the answers. I have no debts, other than mortgage and a few £k savings.

timmy30 - Will I have to self-assess if I earn over £32k? Can't I just do PAYE as I've always done?

[timmy30]

slapmatt said:

Thanks for the answers. I have no debts, other than mortgage and a few £k savings. timmy30 - Will I have to self-assess if I earn over £32k? Can't I just do PAYE as I've always done?

Technically speaking once your into the 40% band it is incumbant upon you to do self assesment even if they don't send you a form. Buggers that they are. Even if the amount that you have to pay is piddleing.

Take a look at the 'late tax return thread'.

I'm PAYE and doing my return right now

[JonRB]

alltorque said:

Look, just allow me this one doff will you. I don't doff every day whatever some people say

Well, ok, if you insist. It's not every day someone doffs their cap to me.

[s2ooz]

You need to offset at least 10-20% to justify the higher APR's of the offset accounts compared to standard accounts.
You can top you offset savings account by another 40-50,000 pounds by stoozing cash from credit cards so you don't pay any interest.

[ledger]

slapmatt said:

Thanks for the answers. I have no debts, other than mortgage and a few £k savings. timmy30 - Will I have to self-assess if I earn over £32k? Can't I just do PAYE as I've always done?

self assessment is on top of PAYE.

It's worth bearing in mind that most modern mortgages will offer a lot of the functionality that an offset mortgage gives, but with a lower interest rate. However you need to be more pro-active to make overpayments rather then them happening automatically, e.g. with my old nationwide mortgage I could make monthly over payments each month and then draw the money back later if I needed it, all without penalty. Now I am on a 3 year fix and the same applies but I can only over pay by £500 per month penalty free.

>> Edited by ledger on Wednesday 11th January 15:27

[benyeats]

timmy30 said:

slapmatt said: Thanks for the answers. I have no debts, other than mortgage and a few £k savings. timmy30 - Will I have to self-assess if I earn over £32k? Can't I just do PAYE as I've always done? Technically speaking once your into the 40% band it is incumbant upon you to do self assesment even if they don't send you a form. Buggers that they are. Even if the amount that you have to pay is piddleing. Take a look at the 'late tax return thread'. I'm PAYE and doing my return right now

I think that it has recently changed such that people whos only income is covered by PAYE don't have to fill in a return any more. I guess this lowers the IR workload of processing returns from people who only had to fill in a single box.

Ben

[muley]

I think they are the canine gonads. Have one with first direct - paid off the mortgage years earlier, but still have the flexibility to tap into a serious wodge of money if I need it (for buying another Lotus for example) The interest is slightly higher IIRC but worth the extra.

[JonRB]

muley said:

paid off the mortgage years earlier, but still have the flexibility to tap into a serious wodge of money if I need it (for buying another Lotus for example)

That sounds dangerous.

[dnb]

It is dangerous. We now only have a mortgage so that we can have fast cars...

[SFV]

slapmatt said:

I think that it has recently changed such that people whos only income is covered by PAYE don't have to fill in a return any more. I guess this lowers the IR workload of processing returns from people who only had to fill in a single box. Ben

Reference my previous post, I guess I should also read the whole thread! I can check out R&C webiste for details should a response to my last query not be forthcoming. Cheers.