"The One Account"- a bit of advice please!

bdmum1

Hi

This is my first post here so please be gentle!

We've had our mortgage through the OneAccount for about 5 years now and our aim is to pay it off as soon as possible.

Our current mortgage balance is around £55000, and we have £20000 savings, giving us a net debt of £35000; we've also been overpaying and have managed to bring the end date forward from 2015 to 2010.

We'll shortly be able to deposit another £22000 which will bring our total savings to £42000 and will stay in the account untouched(hopefully!). So our total debt will reduce to around £13000.

This is where we're getting confused!

We're assuming this new deposit will bring our end date forward again. Does this mean our monthly payments of around £600 will then actually stop altogether, as long as we continue to leave the £42000 savings in there? What happens when our savings match the balance outstanding? Do we not need to make any further monthly payments, as long as we don't touch the savings?

Our plan is to start adding a few hundred each month to the savings pot, which we'll obviously be able to increase when the monthly mortgage payment stops; we just can't work out when that's likely to be.

The account's worked really well for us so far, but we just can't seem to get our heads round this aspect of the account.

Sorry if this seems like a daft question, but hope someone will be good enough to clarfiy it for us.

Cheers

getmore4less

One easy way to think about it when you get to 100% offset is that the payment(to reduce amount owed) comes from the savings and you start saving the payment you have been making somewhere else.

You are now at the point where you need to think beyond just paying of the mortgage and what you want from the longer term savings.

100% offset does mean you can pay the mortgage off but I like to keep the option to access relatively cheap money so leave mine on the repayment schedule.

wymondham

Your repayments will still go on at present as you have £13,000 on the mortgage, but the interest will obviously reduce significantly - interest will be charged until you go into credit (at this point they pay you interest - not much but better than Barclays etc..). Once you reach £0 on the account you have several options (I have spoken to them about this in the last few days so hopefully this is all up to date!)

1. Ask them to remove the charge on your house. This obviously removes your mortgage (yippee!), but you'll lose your savings - it would be wise to build up a fund elsewhere before doing this. Once this is done think of the account as a standard current account (and never go 'overdrawn' again!)

2. Keep the charge on the property. In your mind the mortgage is paid off (and to all intents and purposes it is if you now stay in credit), but keep access to your savings at a low rate as mentioned above. As I understand it you can continue like this indefinately. This is the best of both worlds as you have access to your savings today, but if you wanted/needed to you could end the mortgage tomorrow with a phone call! This might also be the best route to keep your credit rating up????

The self imposed date to pay off your mortgage is not enforced by One Account once you go and stay in credit.. (can someone confirm this??!!)

I'm pleased the account has worked for you - it's also doing the same for us (our 9 year mortgage looks like being more like 8 months.... fingers crossed!). Apart from the higher than average interest rate you can't fault it for flexibility (the only rule seems to be get to £0 in the account by the end of your repayment period - apart from this you're left to sort it out yourself).

I hope this makes things clearer, and if I've got anything wrong anybody please let me know!!!

bdmum1

Thanks so much for taking the trouble to reply and for the explanations.

Both the savings lump sums have been paid to me as part of my pension package due to having to finish work for health reasons, so I won't actually receive anything further when I reach age 60 (12 years away); this is why it's essential for us not to touch it, but to add to it as much as possible.

Although the option of losing the charge on the house is very tempting, it doesn't feel right for us to use my pension pot for this, and be left with nothing in the way of cash savings. For some reason it feels better being able to see a nice healthy savings sum in there even if we still have a mortgage debt of the same value! (Woman's logic i know!)

On the other hand, once the mortgage is fully paid, there's little value to us leaving any significant sum in the OneAccount as their credit interest rate is negligable. This has prompted us to start looking at moving some of the money elsewhere, if only the £3000/£6000pa ISA allowance.

Our current mortgage interest rate is 6.85%; does it make more sense to leave as much as possible in there until we've reached the £0 and then move any savings elsewhere, or start moving say £3000 /£6000 pa now?

Our prime aims are to clear the mortgage as soon as possible, and so reduce monthly outgoings, but also to ensure we use the money in the most effective way.

Thanks again for any contributions.

ViksB

We have a one account and the mortgage is paid off, it is 28 pounds in credit. When we paid it off a few months ago, we were given 3 options
1- close it
2 - keep it as it is and run it as a bad current account
3 - keep it as it is but remove all direct debits and salary paments etc to a decent current account, but with the one account keeping the deeds to the house and us having a large cheap overdraft facility if we ever needed it. Obviously we would then need to pay our salaries back in. So currently they are paying us a tiny bit of interest to keep our deeds safe and give us a large overdraft facility.
We went for option 3
Hope this helps.

bunking_off

Hi bdmum1

Congratulations on getting close to zero. I must admit you have a slightly different way of looking at things...I know the One Account lets you visualise things as having savings and debt "pots", but in reality what you have is large overdraft (secured on your house) that your lump sums are reducing. You regard it as a £55K mortgage with £42K savings : I simply regard it as a £13K overdraft and regard the savings as having been used to pay the overdraft down. By leaving the One Account open you have the flexibility to utilise that overdraft again in the future. We're describing the same thing but from different angles, but it does change your perspective a little.

So...

...until your One Account goes into credit (in your terminology your savings "pot" equals your outstanding mortgage), any spare/extra money you get should go into the One Account. It'll reduce the balance of your One Account debt, which is the equivalent of getting 6.85% net in savings - something you'd struggle to get anywhere else.

...once your One Account goes into credit (in your terminology your savings "pot" is larger than your outstanding mortgage), put any excess funds into other savings vehicles. ISAs first to get the benefit of tax free interest, then whatever's highest thereafter. As others have said in principle you could close the One Account at that stage and release the charge on your house, but there's not much point really as you lose the flexibility to draw down on the facility again. I guess at some stage RBS might try to flick you onto a more conventional current account, but I haven't been lucky enough to test how long their patience lasts for.

ViksB as a matter of interest why under option (2) do you term it a "bad" current account? Is that purely from the perspective that the credit interest rate isn't the best, or is there some other deficiency with it?

firesidemaid

if you want/need access to the savings money in your offset account then it is not truly paid off at the moment.

depending on how much of the offset account savings that you wish to keep for the future, then this is now how much you need to save (so that you can truly pay the capital amount off).

as you are not paying any interest you can pay as much money as you can per month into another high-interest paying savings account or ISA - until you have the true amount of savings that you are happy with and can/will pay the mortgage off.

ViksB

bunking_off
No, nothing is wrong with the current account, in terms of what it offers, in fact it's great. It was a really pain to transfer all our dd and salaries and those random things you forget about across to another current account, but the interest rate is low compared to other accounts (although it is actually higher than some!!!)

bdmum1

Thanks again for the replies and explanations.

bunking_off: I knew my way of looking at things was a bit complicated/ illogical, but thanks for being generous! Your explanation makes much more sense than mine and it all became crystal clear.

But when I read the final bit of sazzacats post I got confused again: (it doesn't take much!)

"as you are not paying any interest you can pay as much money as you can per month into another high-interest paying savings account or ISA - until you have the true amount of savings that you are happy with and can/will pay the mortgage off"

I'd always thought the idea of the offset morgage was to keep as much money as possible in the same place to reduce the amount on which you owe interest, ie in our case, to £13000. So if we've got extra funds available each month, does it not make more sense to leave them in the oneaccount reducing the interest bill even further, rather than moving them elsewhere?

Sorry if I've misunderstood the post.

Thanks

bunking_off

I think scazzacats is coming at this more from the perspective of a conventional offset mortgage rather the a current account like the One Account.

However, the way I read it is "once you've got the One Account down to zero, you should put any savings into a high interest savings account / ISA. When you've got to the stage where you got sufficient funds in your ISA that you're comfortable that this could cater for any rainy day eventuality, then you can close the One Account as you'd never need to draw upon the facility again."

I'd stress all of this is when the One Account gets to zero, not any time in advance of that. If you found an ISA that paid e.g. 6.5% and put money in that now, you'd be getting 6.5% on your savings but forgoing saving 6.85% on your One Account, so would be losing out by 0.35%.

At risk of adding another degree of complexity, have you considered stoozing at all? You can readily get a 0% balance transfer from a credit card into your One Account, reduce your One Account balance for a year, then when the promotional rate finishes, pay the card off with your One Account. Whatever the amount is that you Balance Transfer, you'll effectively pay no interest on it for the year. Nowadays you have to pay a 2 or 3% transfer fee, but it still makes sense.

skintlass

The current variable interest rate on the one account is high - I'm moving to a standard fixed rate mortgage and saving 200-250 per month on interest which will go to pay off my mortgage instead.