I'm looking at coming out of my fixed rate mortgage (fee applies) and opening an offset mortgage.

I understand how the offset works, buy reducing interest payable using my savings.

This is what i'm planning to do (assuming i'm accepted for a mortgage).

I have a house with a market value of 160k, my current mortgage is 61k, which is made up from (original 52k) but now at 48k Endowment (due to mature october 2016), 4k on capital repayment and 9k on Equity release loan(repayment). There is approx 7 years left on all the mortgages.

My dad has 73k in savings which he is happy to effectively lend to me, FOC, as he isn't getting much interest from it at the moment. But he wants the money to be available to him should he need it.

The question is, can i use the savings to offset the full 61k, ie no interest to pay, and then continue paying the same monthly amount into the pot, to reduce the capital ie 61k. My way of thinking is, that this will reduce the capital amount actually owed when the endowment matures.
I don't know what value that will be, but it is likely to be considerably less than the original 52k that i was told it would generate. I want to limit the financial damage when the mortgages finish.

Has anyone got one of these mortgages and is using it in the way i would like to. If so, are there any pitfulls or drawbacks that i need to be aware of?

Thanks

I agree, offset mortgages look attractive.

However, the problem with your dad using his savings to help with an offset mortgage is that I think HMRC will consider it an income benefit, and seek to impose tax on the earning. There's also the danger it may even be seen as a cash gift, which means HMRC seeing your dad as no longer owning that cash, which means taxing the full amount, rather than the interest paid.

Definitely talk to an accountant about this.

Very sound advice which you would be mad not to take.