Mortgage calculation problem

S

Shaz

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I have an offset mortgage at 5.15% and it costs me €1617 per month (excl TRS). I am thinking about switching to another mortgage that will cost me €1516 per month (excl TRS). This a savings of €101 per month and €1215 per year. If I save €23595 in my current account that is linked to the offset mortgage, it will save me mortgage interest of €1215 (5.15% of €23595). So this means that if I do save that amount in my current account that is linked to the offset mortgage, I will no better or no worse off than switching to the mortgage which will cost me €1516 per month. Is this correct? Another other factors I need to consider?
What happens then in Year 2? Just can't get my head around this.

Please help. Thanks.
 
Why not just look at the rate (APR) or cost per thousand on the two mortgages first - and the normal one at that and not any short term discounted offers? The lower the rate the more competitive the mortgage. Then you can consider making accelerated capital repayments on the alternative mortgage if it does not happen to be an offset/current account mortgage? A rate of 5.15% (ECB + 1.15% sounds on the high side). What loan to value ratio are you on at this stage (loan amount outstanding expressed as a percentage of the property value) as some lenders offer more competitive rates for lower LTVs.
 
What made you decide to go for the Offset mortgage in the first place?
Was the concept fully explained by the lender?

My understanding is that even though you are paying a fixed repayment each month - any savings in your account are offset against the loan and will reduce the interest charged on the mortgage. This means that you are effectively overpaying on monthly repayments and hopefully reducing the overall term of the mortgage. The offset mortgage may well be paid off a few years earlier than a normal mortgage and therefore save you thousands..
The interest rates on offset mortgages will very rarely be the best on the market. You could get a cheaper rate on a traditional mortgage from Halifax or NIB or PTSB .
Offsetting, is best when you have a reasonable amount of money sloshing around in your savings or current account.
If you haven't - then it could be worth switching.
 
If I recall correctly there are only a few offset/current account mortgages on offer on the Irish market and they generally charge (slightly?) higher rates and/or account maintenance charges so you need to have a certain amount of cash lodged in the offset account to cover these before you breakeven compared to the most competitive tracker/variable rate on offer elsewhere. In my opinion you should look primarily at the rate (APR) or cost per thousand on a mortgage when comparing different offers. After than you can start considering how to factor in bells and whistles like offset/current account facilities that might save you interest and reduce the effective term versus just making plain old lump sum or regular capital repayments on a "normal" tracker/variable rate mortgage. If in doubt get a good broker on the case.
 
Thanks for your replies. I do understand the bit about having some money in the current account linked to the offset mortgage in order to benefit from the nature of the mortgage. However, my question is how much money. I have put some figs in my original posting so that somebody can help me calculate how much I need to have in savings for the offset mortgage to be worth it compare to another type of mortgage. Please help.

Thanks.
 
Without having given it too much thought, I think you're analysis seems reasonably sound. I'd say, though, that if you had an excess balance of 1960 in your account each month (i.e. the amount that would credit against your mortgage interest), that would generate 101 per month in interest. Which brings you back to your original figure...

Actually - just re-reading your post, if you're paying €1617 at the mo, presumably that includes some savings since some current account interest is credited to that figure? In that case you may need to save 1960 above and beyond what you are currently saving...

If you can post the amount you would pay when no interest is credited, that may help get some more accurate figures...
 
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