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Just been doing a quick calculation on mortgage repayments.
As I'm a contractor I'll be keeping a sum of money aside to last me between contracts.
The saving looks substantial - c 35% of the mortgage repayment.
Is there a catch?
I'm on one. I did the sums and unless I assume that stocks/shares will perform well, I was far better off using my savings to offset (1 yr into 3yr deal)
Yes, higher rates of interest.
And just make sure you put the money back into your business accounts at the end of the tax year.
its worked out very well for us, compared to our old deal not contractors or anything
and meant we could overpay a fair amount
Obviously the rates are a little bit higher than a normal fixed deal, but it normally doesn't take too much cash in your offset account before you're better off.
You're not "making"any interest - so that makes it nice and tax efficient and also the money is accessible straight away.
Watch out for fees and tie in periods - as with any mortgage.
The only disadvantage I can see is they cut down the amount of interest you pay the bank so significantly that they're bound to get stopped one day.
Chap i worked with used to pay himself one large dividend at the start of the year into his offset.
Depends how you feel about having your cash tied up. If you're happy to commit to putting your savings against your mortgage for 2/3/5 years you'd be better off with a normal mortgage as the rates are better, but in the OP's position offset might make a lot of sense.
Good. Had one a few years ago and it worked a treat. Obviously not much cop if you have no savings 🙂
Do you reckon these would suit a situation where you get paid gross?
It would be a good 'place' to keep the 'tax money' I suppose???
DrP
Worked for us, paid off our mortgage after 11 years, but does depend on how much savings you have etc.
Working for us, should be mortgage free in 4 years, 8 years earlier than if we didn't have the offset thingy but we have always paid in a set amount each month and the interest amount has altered (with the savings adjustment) so the extra we paid chiseled away at the loan too.
We only had a few grand in savings but 8 years early is a nice thought.
when we looked just before Christmas they weren't good! we would be having to pay the morgage company for the privlege after a few years (can't remember the in's and out's) decided it was way better and cheaper to stay on our variable rate mortgage and over pay every month like we've been doing for the last 4 years.
Worked for me, but it could go wrong*(due to them generally having higher rates) if for some unexpected reason you had to use your savings elsewhere.
Also some mortgages have a built in 'annual part overrepayment' clause (e.g 10% in my gfs case) this might allow more flexibility with a lower base rate