Loan Amount: £450,000
Finance Category: Residential Mortgage
Fox Davidson were approached by a Ltd Company Director who was looking to purchase a new main residence. The client had some surplus cash from a divorce settlement and they wanted to use this in the future to invest in a buy-to-let portfolio. They wanted to take their time looking at buy-to-let properties, so were ideally looking for an offset mortgage to enable them to purchase a new main residence and use the offset facility to make this as efficient as possible.
Offset mortgages tend to have slightly higher interest rates than standard products. The client was looking for a 2 year fixed rate. We discussed the difference in rate between having the offset facility or picking a standard rate, and felt it was worth the increase in interest rate to have the facility because they could really use it to their advantage.
Fox Davidson were able to secure the client a 75% loan-to-value offset mortgage at 2.80% on a 2 year fixed term. We also discussed how the client could really maximise the offset facility on their mortgage. They would therefore not only place the £100,000 surplus cash into the offset facility, but also be able to place their regular tax savings of £2,000 a month into the account.
Lastly, they are able to overpay another £1,000 per month into the offset facility. All of this they can draw back at any time, however whilst it is sat in the offset, it is effectively reducing the term of the loan. We calculated that if they took their £450,000 mortgage over a 20 year term and withdrew all the offset savings for themselves, they would be able to reduce their mortgage term to 16 years 3 months. If they decided not to withdraw the savings, they could clear their mortgage balance entirely in 5 years 9 months.
We then compared their offset interest rate of 2.80% against a non-offset 2 year fixed rate at 2.19%. By using the offset facility and reducing the overall mortgage term by 5 years and 9 months, they would save £76,958 in interest payments.
The client was really happy with the knowledge that they were really maximising the benefits of using the offset facility, as well as having the flexibility to withdraw part or all of the funds at any point. This gave them the ability to move quickly if they found an investment property they really liked.