Offset mortgage - good or bad idea ?

D

Daddy

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Thinking of taking out a NIB offset mortgage. 20 year period.

Mortgage 150k

Monies in offset accounts 150k approx.

If I keep it like this a 20 year loan can be reduced to about 13.5 years and in effect I pay no interest.

As the capital reduces every month I could reduce the amount required in the offset savings thus ensuring I pay no interest and maybe syphon off what I can every month into my pension as an AVC.

Does anyone think this a bad idea or is it riduculous taking out an offset mortgage with this plan in mind.

Thanks
 
Thnaks for equation.

Sure I could have no mortgage but then I'd have no savings and would need to start the whole process of saving again.

With the offset mortgage I would still have access to my savings should I need them, get interest relief as you mention (not a strong consideration) and bump money (capital reduction on loan paid out of offset savings) in every month to a pension AVC and get tax relief.

Hope I'm making sense.
 
Daddy said:
Sure I could have no mortgage but then I'd have no savings and would need to start the whole process of saving again.
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How much would you be earning on your savings versus paying on your mortgage? If the former is (most likely) less than the latter then this is another argument in favour of eliminating or reducing your borrowing requirements by using some of your savings instead of borrowing while maintaining savings.
 
€150k over 20 years at 3.5% = €870pm approx. repayment.

Don't bother having a mortgage and save/invest that amount per month - into a combination of AVCs, equities and cash - and you'll end up with a tidy sum over 20 years, while maintaining complete flexibility over the period.

I just can't see the point of having a mortgage when you don't need one unless you want the capital sum up front for something imaginative.

Leaving €150k in a deposit a/c, which appears to be the basis of your strategy is the least imaginative use of capital I can think of. Even ignoring the opportunity cost of the investment gains you'd be giving up, what about the erosion of the value of your cash through inflation?
 
So my idea looks very unimaginative.

I suppose the idea of not having a good deal of cash to fall back on is my real problem.

With putting kids through college 7 years away this was my biggest concern in not having real cash to fall back on although I know cash can be saved again in the meantime for the huge expenses down the line.

Thanks for your views.
 
DoctorEvil said:
The tax relief is only on the interest paid so there would be no relief in this case I believe.
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I've had a search around nib's website and can't find anything about the TRS implications of their offset product - it would appear to be more advantageous for the customer if the deposit/loan sums were offset as opposed to the deposit interest/mortgage interest sums since the DIRT would be bigger than the TRS.
 
oysterman said:
I've had a search around nib's website and can't find anything about the TRS implications of their offset product - it would appear to be more advantageous for the customer if the deposit/loan sums were offset as opposed to the deposit interest/mortgage interest sums since the DIRT would be bigger than the TRS.
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Interesting - is there a double benefit of offset accounts in that any money in the savings account would not be liable for DIRT as the interest is not earned on these savings but merely saved off the amount owed on the mortgage? Then also the TRS could be claimed on the remaining actual interest paid?

For example mortgage of 200k offset by 50k savings account interest payable on mortgage of 150k at 3.5%. TRS claimed on the interest as normal.
So is the 50k technically on deposit at 3.5% without DIRT being payable?

Am I missing something in this?
 
I'm doing the same as Daddy but with a First active Current Account.I didn't want to risk any of it by investing it,as correct me if I'm wrong but there is no fixed rate 100% secure Deposit account which will beat the rate your mortgage is at becuase you pay DIRT tax on the deposit account.Also If I needed money in the future I didn't want it to be up to the bank to decide whether I could get it or not,might sound mad but seems sensible to me!
 
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