How-to » OLD GUIDE Cut your mortgage costs

3

jeanius430 said

Hi,

My tip is NOT to use your savings - at least not all of them.

We did that a few years ago and then my husband was made redundant - well the firm went into liquidation so no payout money - and as we'd used our savings for the mortgage and had no other money coming in so we had to remortgage !

So having gone from almost being mortgage free we were virtually back to square one. Not the best of situations when you're getting older. Also house prices and prices in general had gone sky-high so the amount we re-mortgaged had to take all that into condideration.

Once out of the mire and back on track with a small amount of savings behind us the same thing happened again. Fortunately for us we'd saved a small amount so it wasn't as bad and the Mortgage Protection paid most of the mortgage and we found the rest.

So again, my tip is unless you have more savings than you need to pay off the mortgage then don't do it, as you'll end up with nothing. And as the chap at Jobseekers told us 'we dont reward honesty so if you do any jobs to keep your head above water, we'll only take it off of you'!

Be warned!!

Report on 23 October 2009 | Love this

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mbailey said

Surely the point of an offset mortgage is to temporaily put the money into your mortgage, so if you need it back you can get it straight away?

Report on 17 November 2009 | Love this

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Soodie said

We've had an offset mortgage for 7 years now and mbailey is absolutely correct. The savings account is linked to the mortgage, but you can get access to it at any time. So far we have saved over £10,000 in interest by offsetting!

I would definitely recommend looking into offsets.

Report on 20 November 2009 | Love this

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RyanFutter27 said

We had approx 13k in savings in various ISA's and decided to pay a lump sum of 5k off our 5yr fixed mortgage. This saved us over 15k in interest over the term of the mortgage and reduced the term by 2 1/2 yrs as we have kept our monthly payments at the same level.

The decision was based on the fact that our mortgage rate is @ 5.79% and the ISA's would not give us anywhere near the amount of interest which we have saved in interest off the mortgage.

I would therefore recommend to use savings to pay off mortgage, however be sure to leave some stored away for emergencies.

Report on 22 January 2010 | Love this

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slydogjonah said

Some mortgage providers allow payment holidays if you've built up overpayments on the account, so you can effectively withdraw those funds over a period of a payment holiday. For example we're overpaying 300 a month which is a third of our mortgage payment. If in 9 months time we want to, we can take a payment holiday of up to 3 months, hence diverting the 'usual' mortgage of 900 elsewhere if needs be. Savings rates would have to shift north to make it worthwhile doing, but it gives us the flexibility if we did go down to a single income for a period for whatever reason.

Our long-term savings are locked into 5% ISAs (fixed) for another 4.5 years (but with 30 day notice, no penalty), which is only fractionally less than the 5.14% Mortgage 5yr fix (which has 18months to go). We'll re-assess things as rates move, but with a good LTV we should have the whole mortgage market to choose from.

If your savings are in ISAs, I'd be wary of cashing them in to pay off the mortgage because of the annual contribution limits. The increase of the Cash annual allowance from 3,600 to 5,100 is welcome though and makes this less of an issue.

Report on 31 January 2010 | Love this

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Springermad said

I found an offsett mortagage with Woolwich/Barclays where you can transfer ISA into the offsett. However they retain their Cash ISA status. Having now achieved a 100% offset the mortagage is now interest free. Also once its paid down the savings remain as cash ISA's. It took me a while to find this but it works very well. The only problem was to move all seperate and househild accounts from upteen banks to Barclays, however their help in doing this was good, only problem I had was no one in the branch had ever transferred ISA or offset them before? It worked out well in the end.

Andrew

Report on 24 February 2010 | Love this

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johncolescarr said

To be clear, posts above refer to different ways to use your savings to pay mortgage.

An offset morgage is where you offset your savings against your mortgage. basically you have one account which is your mortgage debt minus your savings. This means you always have a negative balance if your mortgage is bigger than your savings, however, you effectively earn your offset interest rate on your savings beacuase you are not paying motgage interest on that amount, plus its tax free! Offsets tend to have a slightly higher rate than standard mortgages and tend to be better for people with large amounts of savings.

Overpaying your mortgage is where you effectively pay your mortgage quicker by overpaying, either regular or lump sums. Not all mortgage lenders allow you to do this without penalty but a lot do. Some mortgage companies allow you to build up a cash reserve, where you can borrow back some/all of the money you've overpaid but not all do this so i you think you might need the cash then check before you overpay. Also, lenders often limit how much you can overpay, usually 10% of the outstanding mortgage value per year, without incurring penalty. You can often beat offset mortgages in terms of interest by using the best mortgage deals that let you overpay and the best cash ISA savings accounts. This method tends to be best if you don't have such large savings but can overpay a regular or lump sum up to the value your allowed.

its impotant to review you mortgage regularly nd chack whether you can get better deals else where, however make sure you factor in tranfer costs, which can be substantial and also what would happen if the interest rates changed, could you afford your variable rate mortgage if the rate jumped my 2, 3, 4, or 5%.

Hope this helps

Report on 16 March 2010 | Love this

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The Bank Manager said

Don't forget the tax benefit of having your savings in an Offset arrangement!

As you are not being paid ANY interest on the savings, you don't pay or need to declare any interest earned. Similarly, it's value is used as a gross sum against the interest rate the financial organisation charges.

You are therefore quids in, as in effect, if your mortgage rate is say 3.75% and the balance is £100,000 with £20,000 in savings - as the example above reflects - you only pay 3.75% on the net £80,000.

If you think about it, your savings have earned you more in making a reduced interest payment to the mortgage company, by earning you nothing!

Report on 17 July 2010 | Love this

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How-to Guides » OLD GUIDE Cut your mortgage costs

Find out how to cut the cost of your mortgage by hundreds of pounds a month and become mortgage-free years earlier.

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