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Q&a 3.4

D

didster

Member
It's not very important but does anyone have an idea how they arrived at £30,000 as the "break even" point for the offset mortgage?

I get £25,000 by solving
interest payment on offset less than interest on regular plus savings
with
mortage capital = 100000
offset mortgage interest = 8%
Regular mortgage interest = 7.25%
saving interest = 5%
x = amount of savings

ie (100000-x)*0.08 < 100000*(0.0725) - .05*x
to get x>25,000

I only considered the interest for one period as it should constant as it's an interest only mortgage.
 
I'm sure that at some stage I used a spreadsheet to work this out, but can't find it now! But I'm pretty sure I used the whole term of the mortgage, as one year alone wouldn't give a true picture due to compounding of interest on the savings (which will be sizeable over 15 years).

In any case, you're right, the exact number isn't that important; the examiners will be concentrating on the communication, not the numbers.
 
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