Home equity line of credit in the UK?

Dan3dp

I've recently seen a number of videos from people living in the USA taking about replacing your mortgage with what's called a home equity line of credit. It's where your mortgage, bills and everything including your salary gets paid all in and out of one account, saving you years and thousands of interest. I'm wondering if that's something we do here in the UK at all as I'm not getting very far with my search?

anselld

Try searching Offset Mortgage.

vacheron

Hi. Mortgages similar to those you are referring to were known as “current account mortgages’ in the UK.

Basically your mortgage showed as a massive overdraft and you used your salary going in each month before it went out on bills etc to reduce interest on a daily basis while you used your own method/discipline to pay down the overdraft over the mortgage term (or ideally sooner).

I believe the Virgin one account used to work in this manner as well as a couple of others whos name escapes me.

In principle it is no different to an offset mortgage, however offset mortgages tend to have the mortgage debt and current / savings accounts separated and then they are all added up together each day and interest is charged on the remaining overall debt.

Dan3dp

Thank you for your reply, I'll look into this because I want to try and pay off my mortgage much sooner ��.

kingstreet

Such products are no longer available.

The One Account is still running for existing borrowers, but closed to new business. It was purchased by RBS from Virgin.

RBS also bought First Active which operated a similar account.

The FSA then the FCA don't like the idea of 're-drawable' mortgages where you can increase your debt without re-approval. It's been seen with the reduction and removal of the additional borrowing limits on Barclays/Woolwich Open Plan products.

Dan3dp

Ok so the only way is to just make over payments?

vacheron

An offset mortgage would give you the same flexibility to overpay and withdraw cash when you wanted it by putting your (unlimited) overpayments into a linked savings account rather than paying the sum off the mortgage. You’d save the same amount of interest or shorten the term, but you can withdraw it again whenever you needed it.

The only difference is you would still make your contractual mortgage payment each month, but if your salary and bills were to use the mortgage linked current account it would achieve the same objective and benefits as the American ‘Home equity’ version, just structured slightly differently.

Do a google search on “offset mortgage guide” and see if that would fit the bill.

Personally, I’m a big fan of Offset mortgages. Mine has saved me £40k in interest alone since I took it out in 2010... you do need a reasonable amount of self discipline though!

InvestorX

I benefited from offset account provided by Intelligent Finance, saving over £20K in interest and reducing the mortgage duration by 5 years!. Sadly this product is not available to new customers but I was lucky to stay on it until the mortgage was paid off. Any form of mortgage that calculates interest daily is better than traditional mortgage.

TrickyDicky101

InvestorX wrote: »

I benefited from offset account provided by Intelligent Finance, saving over £20K in interest and reducing the mortgage duration by 5 years!. Sadly this product is not available to new customers but I was lucky to stay on it until the mortgage was paid off. Any form of mortgage that calculates interest daily is better than traditional mortgage.

There aren't that many available now in the UK that don't calculate interest daily

kahinaj

A Home Equity Line of Credit works differently. Here, a credit facility is agreed for you again based on your income and the equity in your home. However, unlike a home equity loan you do not have to take the money straight away. Instead, you can withdraw the cash in smaller amounts as and when you need it, up to your credit limit.

getmore4less

Dan3dp wrote: »

Thank you for your reply, I'll look into this because I want to try and pay off my mortgage much sooner ��.

The effect of lumping all you money together does not pay off the mortgage that much quicker or have you pay much less interest.

The maximum effect is around the same as 1 large overpayment of the average balance.

NOT SPENDING the money is what does it, just like any overpayment would.

The OneAccount had a flaw(some think it was deliberate) in its illustration model that counted the mortgage payment twice

Some people got fooled into thinking the one account would knock years off their mortgage because of that.