1) How do we get $30,000 as the point to switch to the offset mortgage? 2) How do we know that the one-off £150 is paid 1 year after customers switch to the new mortgage?
You can work this out by trial and error or algebraically. If you have no savings, you currently pay £7250 interest and receive no interest from savings. You would pay £8000 under the new scheme plus the £150 fee. Stick with the current scheme. If you have £30,000 in savings, you currently pay £7250 and receive £1500 interest on your savings (a net payment of £5750). You would pay interest on £70,000 under the new scheme (£5600) plus a fee of £150 (total of £5750). Same as current scheme. If you have £50,000 in savings, you currently pay £7250 and receive £2500 interest on your savings (a net payment of £4750). You would pay interest on £50,000 under the new scheme (£4000) and pay £150 fee (£4150). Go for the new scheme. Alternatively, 7250 - 0.05x = 0.08 (100,000 - x) +150 to get x = 30,000.
Hi, two questions again: 1) how come we don't offset the 5% interest on both the standard mortgage and the offset mortgage here - in other words, they would just cancel out. 2) can the individuals switch between the products more than once?
They are two different schemes. Under the standard scheme, your mortgage and your savings are entirely separate: you pay 7.25% ie £7250 each month for your mortgage regardless of savings; then you get 5% interest on your savings. Under the offset scheme, your mortgage and your savings are brought together: you pay 8% of what's left of your mortgage after you've deducted your savings. So your savings reduces the amount you have to pay 8% on (but you can't also get 5% interest on it!). I expect you could switch back but there would probably be a fee.
