From: Dane Koekoek 
Newsgroups: uk.finance
Subject: Re: Offset Mortgage question
Date: Sat, 02 Aug 2003 22:55:19 +0100

In message <4uWUa.3216$G85.2259@newsfep4-winn.server.ntli.net>
          "Stephen Burke"  wrote:

> Dane Koekoek  wrote:
> > I have some funds put away in a Smile cash mini ISA, currently paying 4%.
> > I'm considering whether to transfer the lot into my First Direct savings
> > account, offsetting against the mortgage, meaning that I will get a lower
> > effective charge on interest.
> 
> You don't say how much you have in the ISA, but otherwise you've summed it
> up fairly well. You are losing the interest rate differential, currently
> 0.5%,

Smile have just dropped this down to 3.75%, making it a 0.75% differential.
(The 4.5% rate from FirstDirect is after the interest rate drop).


> so if you have say £10k in the ISA that's 50 quid a year. The downside is
> that if you cash in the ISA you lose the allowance forever. But if the
> mortgage is likely to last for 20 years or more that may not be relevant,
> an offset mortgage is effectively offering you tax-free interest on
> "savings" anyway.


>   The other point is that 4.5% is not necessarily a great mortgage rate
> anyway, you can probably get a flexible mortgage at about 4% (after the
> latest rate cut) with no ties or somewhat less if you take some kind of
> redemption penalty. Shaving 0.5% or more off your total mortgage is
> probably a lot more significant (£50 a month on £120k), but of course if
> you only just got the mortgage you probably don't want to hear that!

I liked the idea of being able to simplify my finances by having them all
together, so that I no longer had to micro-manage funds between all my
different accounts. Also, I like the idea of offsetting, but being able to
get those funds back from the savings account and not the mortgage, but still
helping to lower my mortgage interest repayments and therefore allowing me to
pay off the mortgage quicker.

Thanks for your help.


-- 
Dane Koekoek
dane@koekoek.co.uk