Mortgage Offer - offset fixed/tracker

**WordIsBond** · 3 April 2018, 18:54

Nationwide typically allows 10% prepayments a year. Will you be making any prepayments?

I personally would assume that by the end of that five years the tracker will have a higher interest rate than the fix. If you've been making prepayments, you'll have reduced the impact of that. My mortgage days have been gone a while. A few times I chose a tracker rather than a fix, and made prepayments every month by paying what the payment would have been on the fixed rate, plus a lump sum once a year.

Rates are going up next month. Probably again later in the year. Assume two interest rate rises a year for the next three years and look at where you are, and realise you are vulnerable to more.

You're £30K offset. Does that include a directors loan? You could take a loan of say £8K (to avoid getting close to the threshold), slap it into the offset, and every year just before your company's year ends, pay it back, wait a month, and take it out again and put it back on the offset.

**kaiser78** · 3 April 2018, 19:27

Thanks for the response. Yes I am having to re-mortgage due to my pending divorce arrangement.

The tracker is for 2 years and I can pay the 30k lump sum into it at any time, as there are no repayment restrictions. Alternatively I can offset the 30k if I take the 5yr one offset and still have access to funds if I need to.

I need to decide whether the cost saving of the tracker deal will be greater than if I offset, even allowing for 2-3 rate rises, which I think it will.

Also the tracker has no redemption charge over the two year period so I can move to offset in a year or so time, seeing how the dust settles post-divorce.

**kaiser78** · 3 April 2018, 19:29

And I like the point about taking directors loan to help offset, which I will speak to my accountant about.

**WordIsBond** · 3 April 2018, 20:08

The two years is probably irrelevant, you can probably get a similar tracker two years from now.

What's relevant is rates are likely going up and you'll probably never see a fix with that rate again. So the horizon is not 2 years but 5. Where will rates be in five years? I'd bet higher than 2.29, and probably over 3.

If you've reduced your mortgage by a third by that time, that won't matter. If you prepay 10% a year and rates go up by 0.5 or even 0.75% a year, you'll be ahead with the tracker. By the time the tracker's rate exceeds the fix, you'll have reduced the mortgage enough to give you some cushion. If you aren't going to prepay much, the tracker is a bet that rates will stay below 3% for five years. I wouldn't be making that bet, personally, but none of us predict the future. You have to guess.

Set up a spreadsheet, run some scenarios that you think rates will do over the next five years, and how much you think you'll be able to prepay on it. Run a bad case to see how bad it might be, a terrible case, a somewhat pessimistic case, etc. Look at the scenarios, good and bad, and see where it puts you after five years, how much you've paid, how much you owe. Decide whether the risk is worth the security.

DON'T decide, whatever you do, merely based on the payment amount. That's changing, next month. And again later this year, and not in your favour.

**WordIsBond** · 3 April 2018, 20:10

Originally posted by kaiser78 View Post

And I like the point about taking directors loan to help offset, which I will speak to my accountant about.

Just be sure to pay it back every year, and not take it out again for more than a month. But that still means you get 10 months and 3 weeks of offset, which is worth almost £200 / year. Assuming you have the money in your company, of course. By the time the divorce is over, will anything be left?

**northernladuk** · 3 April 2018, 23:00

I went for a 5 year fixed this time. I've played the tracker game long enough and am pretty confident the fixed is going to out perform and tracker over that period.

I don't bother with the offsets anymore. If you look around you should be able to find investments that will beat the offset and still be flexible enough to get your money out fairly quickly. Mortgage is the cheapest way to borrow money nowadays so paying it off is down the list for the moment for me.

**Smartie** · 5 April 2018, 09:45

Offset

I went for the 5 year offset. Two year deals are a pain - especially if you're out of contract when it comes to renew. Plus the fees of course.

The offset is a bit more expensive but I calculated that if I kept an average of at least 10% of the mortgage debt in savings then it would be about the same cost as a fixed deal.
Planning to put all my divs in at the start of each year so my average savings should be higher than that and the mortgage term will be reduced over time. The option to pay it off early is a good thing (or to have cash available for investment if preferred).

I like it for the flexibility - can have all my money out if needed or spend it down over any periods out of work.

Yes, there are other investments available but cash ISAs are pretty crap at the moment, stock markets are toppy and volatile for share ISAs, peer to peer lending is an option I guess and then there's property which is not easy to liquidate. Besides company contributions into a SIPP, I'm happy to hang back on the other investments for now until the inevitable crash then start building share ISAs.

**SueEllen** · 5 April 2018, 13:31

Originally posted by Smartie View Post

I went for the 5 year offset. Two year deals are a pain - especially if you're out of contract when it comes to renew. Plus the fees of course.

The offset is a bit more expensive but I calculated that if I kept an average of at least 10% of the mortgage debt in savings then it would be about the same cost as a fixed deal.
Planning to put all my divs in at the start of each year so my average savings should be higher than that and the mortgage term will be reduced over time. The option to pay it off early is a good thing (or to have cash available for investment if preferred).

I like it for the flexibility - can have all my money out if needed or spend it down over any periods out of work.

Yes, there are other investments available but cash ISAs are pretty crap at the moment, stock markets are toppy and volatile for share ISAs, peer to peer lending is an option I guess and then there's property which is not easy to liquidate. Besides company contributions into a SIPP, I'm happy to hang back on the other investments for now until the inevitable crash then start building share ISAs.

Ask AtW about the housing crash...

**Smartie** · 5 April 2018, 13:44

Originally posted by SueEllen View Post

Ask AtW about the housing crash...

Unless we're in a New Paradigm (TM) then a recession and stock market crash is inevitable - eventually.

Mortgage Offer - offset fixed/tracker