[Le Moor]

Folks are you aware of the benefits to made from the "Offset Mortgage?"

If your goal is to pay off your mortgage early or reduce the amount of interest paid to your lender, then you should take a look at this mortgage it could potentially save you thousands of pounds in saved interest payments.

Basically the offset mtg is a mtg which uses the balance in your savings/current accounts to offset against the mtg balance. What this means is that the monies in your savings/current acct will no longer gain interest, instead the interest, paid at the same rate as the Mtg, will offset against the main mtg balance.

For example:

If you have a £100,000 mtg and £50,000 in savings it would mean that you no longer gain interest on the £50,000 savings but instead they will be used to offset against the mtg balance. Hence you will now only be charged interest on £50,000 of your mtg (£100,000 mtg - £50,000 savings = £50,000 interest charged) This is as long as you have the £50,000 sitting in your account/s.

This brings obvious and not so obvious benefits.

Firstly continuing with the above example, you are now effectively getting a £100,000 mtg for the price of a £50,000 mtg. You can now choose to have to two outcomes with this arrangement.

(1) you can have your payment reduced to reflect the new amount of interest paid. The payment on a £50,000 mtg is going to be half that of a £100,000 mtg. therefore throughout the period you are "Offsetting" you would have paid half the amount of interest to you lender.

(2) You can opt to continue paying the same amount you would have normally been charged for the the original £100, 000 mtg and this would mean that because you're only be charged interest on £50,000 of the mtg, you are now making an overpayment. The outcome being if you're making overpayments to your mtg it means that your term would reduce quicker and you end up saving on the overall amount oif interest charged.

An example taken from Barclays Website:

Calculation based on the above product; repayment mortgage of £100,000 over a 25-year term that has been offset with £20,000 savings, resulting in a reduction in mortgage term of 9 years or a saving of £51,011 in overall interest.

The not so obvious benefits are:

1, if the interest paid on your mtg is more than the rate you get on your savings, then you are making your money work harder and smarter for you.

2, All interest "offset" is totally TAX FREE, which the same cannont be said for your savings unless they are TAX Free savings like ISAs etc which inidentally can also be "Offset".

3, These type of mtgs normally are totally flexible. You can make as many overpayments as you like without penalties, or you can switch to another Lender or pay off the balance in full at any time, without being penalised. There are no early redemption penalties or tie ins.

A point which to some could be a negative( ie those with not enough savings to make an impact or those whos need for stability in a fixed rate is greater) to be made is that you cant normally get these mtgs on a Fixed rate basis. They come as variable rate mtgs meaning they track the Bank Of England base rate. When "it" goes up so does your rate, and when "it" comes down so does your rate again.

A point to consider. As a general rule it normally isnt recommended that you would want to take this mtg unless you have at least 10% of the Mtg balance to Offset in savings. Ie on a £100,000 mtg you have at least £10,000 in savings to Offset. Another point or question many ask is about access to savings. You can still have immediate access to all saviings. It just means however much you draw out of your accounts is the amount of monies which are no longer going to be Offset, therefore you would then be charged interest on the mtg accordingly.

[Incognito]

Le Moor - i had a similar setup. I would pull out as much equity as I could so I had ready cash anytime I needed it but would leave it in the account so it was offset against what my actual mortgage was. Basically my mortgage was only costing me what I spent...and had emergency money at the ready....£60k at one point.

[Le Moor]

Originally Posted by Incognito

Le Moor - i had a similar setup. I would pull out as much equity as I could so I had ready cash anytime I needed it but would leave it in the account so it was offset against what my actual mortgage was. Basically my mortgage was only costing me what I spent...and had emergency money at the ready....£60k at one point.

Good idea.

You know there are some Offset mtgs that have whats known as a reserve facility, which could of have provided the 60k you needed without the need to re-mtg the way you did. When you originally went for the mtg you could of applied for this reserve facility upto the maxuim your Lender was prepared to give you. For example, if you originally borrowed £100,000 but your earnings allowed you to have £150,000, you would then borrow the £100,000 and have £50,000 put on reserve. In other words its already agreed and its there if you need it. Much the same as you did before. The difference is, this way you've done the same thing within one transaction. The way you did it was within two, hence two lots of set up fees.

Its only a better way of doing it mind you, if the reserve can be drawn down at the same rate as the mtg, otherwise the way you did it, may have been the better option.

[Incognito]

Le Moor - apologies, was always meant to reply to this. On the reserve front, I don't know if it works the same way but the reason I went for the remortgage option was in case the housing market crashed I would have the remortgage money sitting there as hard cash ready to take it and run

And to think, everytime I remortgaged the intention was to give half the money to the wife

[Le Moor]

Originally Posted by Incognito

Le Moor - apologies, was always meant to reply to this. On the reserve front, I don't know if it works the same way but the reason I went for the remortgage option was in case the housing market crashed I would have the remortgage money sitting there as hard cash ready to take it and run

And to think, everytime I remortgaged the intention was to give half the money to the wife

Whats up Cogs, not like you to go missing.

Re: Property crash..... on this forum Free stock prices, quotes, stock charts, market news and streaming real-time stock quotes. (go to Free BB) theres is a thread there call "UK house prices a bubble waiting to burst". This thread has been alive for about 5yrs and we're still waiting....lol. I guess going by sods law, if it happens then it will probably come when we're least expecting it.

[fredblack 2]

Le Moore..Not sure if I buy this mortgage crash business and the housing market is no different than any other..irrational moved by whim and extreme speculation predicting worse case scenarios at both ends of the spectrum. Sure there may be a correction but crash not to sure about that...and even if there is it will be concentrated within certain sectors and regions..

True to say some people are going to get burnt especially those who went crazy during the buy to let days and they tend to be a particular type of business person pursuing a particular type of strategy...People going from owning one home to fifty in next to know time on the assumption that honey lasts for ever, as well as first time buyers...But personally I don't buy the crash and burn scenarios particular analysts like to come with...

[Le Moor]

Originally Posted by fredblack 2

Le Moore..Not sure if I buy this mortgage crash business and the housing market is no different than any other..irrational moved by whim and extreme speculation predicting worse case scenarios at both ends of the spectrum. Sure there may be a correction but crash not to sure about that...and even if there is it will be concentrated within certain sectors and regions..

True to say some people are going to get burnt especially those who went crazy during the buy to let days and they tend to be a particular type of business person pursuing a particular type of strategy...People going from owning one home to fifty in next to know time on the assumption that honey lasts for ever, as well as first time buyers...But personally I don't buy the crash and burn scenarios particular analysts like to come with...

I think you're right Freddie, as long as interest rates and inflation are kept under control.

[Le Moor]

Bank of England cuts rates to 5.5%

Helen Pow - 06-Dec-2007
The Bank of England’s monetary policy committee today voted to reduce interest rates from 5.75 per cent to 5.5 per cent.

Council of Mortgage Lenders director general Michael Coogan says: "A reduction in interest rates is exactly what the market needs and will benefit consumers. This will reduce the risk of payment shock for the 1.4 million borrowers coming off fixed rates in the next year.
But he says the authorities may need to intervene more aggressively to open wholesale funding markets as there is a real need to minimise the shortfall between the demand for mortgages and lenders' capacity to supply them.

RLAM economist Ian Kernohan says: "Today's move was not entirely unexpected, although it was a very close call. I expect the general groundswell of opinion in favour of a cut played a part in the decision. No doubt there will be some ritual bleating about the MPC cutting rates at a time when inflation is above target and set to rise further, but monetary policy is supposed to be pre-emptive. There is more than enough tightening already in the system to bring inflation down later next year."

Mortgage Advice Bureau head of lending Brian Murphy agrees the cut comes as a surprise considering the rate of inflation has again creeped up over the 2.1 per cent target level.

He says: "There has been a considerable slowdown in the housing market over the past few months but this slowdown has almost been too dramatic and a base rate decrease is long overdue. I expect there will be more to come during early 2008."

[Incognito]

The low interest rates of the recent years and the resulting high borrowing was a deliberate government move to fund the wars in Iraq and Afghanistan.

The one thing about the west, their number one priority is securing their economies so in a swings and roundabouts boom and bust cycle, as long as you're willing to sit it out, even if it means declaring a false war against some other regime, their economy will always return to flourish after a down spell.

Which I guess is fine as long as it's not your homeland they occupy next....even more so if you consider your homeland as here

[Le Moor]

Pepes many of you this year may be coming to the end of your fixed rate mtgs and because rates have moved on, whats now being offered to you means your mtg is more than likely to increase quite lot.

Don't panic, but get prepared before your deal comes to an end. If your mtg has no penalty charges after the fixed rate period (most do not, but check with your lender), then you're free to shop around for the best deal.

Tips for doing this.

Start with your existing Lender, go to them direct or online and see what they can offer existing customers. Ideally you really want a deal with the lowest rate and the least amount of arrangement fee (set up fee which can be zero). Decide if its fixed or tracker (variable rate that follows Bank of England base rate) that you want. The expectation is that rates are due to come down, so if you want to benefit from this and can afford a few rises if the worst was to happen, then choose the tracker option. Try and get one which has no early repayemnt charges at'll, so you can switch to a fixed rate if the climate changes. Or get one which only ties you in for 2 yrs max as we are still in uncertain times.

If you get a fixed rate, you have to decide whether its worth paying a fee to get the best rate or choosing a slighty higher rate with no fee. You need to work out what the monthly repayments are on both options, then deduct the two amounts to give you the difference in cost per mth. Then times this difference by the number of mths the fixed rate period is for and this will tell you whether its worth paying or not. For example if the difference between two deals saves you £2000 over a two yr period, but the deal costs £2500 to set up, then you would choose the alternative deal with a lesser or zero fee. (get advise on this if in the slightest doubt)

NEVER take a deal which has a 'tie-in' period. This means even after the fixed rate/discount period of the deal on offer, you are not free to leave until after a certain time without paying a penalty. Avoid this becuase within this tie-in period you will be stuck on that lenders highest rate for x amount of mths giving back all the benefits you originally reaped in the beginning of the deal.

If you do switch to a better deal with another Lender, try and get one which offers to pay your valuation and solicitors fees for you, several do.

If you use a broker, get one that doesnt charge a fee or a mimimal one if they do. (£299 max) tell the broker you are not paying any fees up front until you get a confrmation from the chosen lender, that they're happy to lend you the mtg. If they dont like this, then tell them to take it or leave it. If they really do leave it and you're desperate to get the deal, then offer them half the fee upfront. What you want to avoid at all costs is paying any non-refundable fees and then being told you've been declined for the mtg.

If you need any further clarification on these points then please discuss here or pm me if you prefer to keep it private.

[Femergy]

More than a million homeowners could be at risk of serious financial difficulty and possibly losing their homes in an economic slowdown, the City regulator warned yesterday.

The warning comes as surveyors predict today that 123 homes a day will be repossessed this year. The FSA cites three warning signs on mortgages:

· The loan was taken out for longer than 25 years;

· It is worth more than 90% of the home;

· The amount borrowed is 3.5 times or greater than income.

Over a third of all mortgages sold between April 2005 and September 2007 fall into one or more of these categories. This suggests that more than 2m of the 5.7m mortgages written during this period are of potential concern.

It is the 1.04m customers whose mortgages contain two or more characteristics who most concern the FSA. It calculates that the number "most likely to default on loans" - those whose mortgage falls into all three categories - is 150,000.

The regulator is concerned that many borrowers are badly prepared for worsening economic conditions. It believes homeowners may have become too reliant on cheap credit and rising house prices to sustain levels of spending.

The FSA's concerns are based on the current economic climate deteriorating and an end to the easy credit available to many customers over the past two years.

A "significant minority" of customers could find their finances become very tight if lenders react to any worsening in financial conditions by cutting the number of mortgages they are prepared to sell .

Read: Warning over one million homes at risk | Money | The Guardian

Judging by what has happened in the US, repossessions are the order of the day and the lenders don't appear to be taking any resonsibility for contribution to bad lending and in other cases, illegal lending.

My advise would be to do the calculations using interest rate rise % to anticipate what you think the increased cost will be and get legal advice asap because repossessions will be a given if you default and if the 80's and the US housing economy/market is anything to go by.