The One Account?

jamesd

MoneyMac, it looks as though you are poor candidates for the One Account, not planning to use the current account feature that can make it helpful for people who pay perhaps half of their total mortgage balance into and out of their mortgage current account each [STRIKE]year[/STRIKE]month. The average balance in the current account decreases the outstanding mortgage balance, reducing the outstanding mortgage interest by the interest on that current account balance.

Next one to consider is the possible benefit of an offset (rather than current account) mortgage. For long term savings and investing an ISA is normally the best choice because it can pay interest rates above mortgages with competitive interest rates and the money can stay saved or invested long after the mortgage is over. Assuming that it continues to be possible to get rates higher than competitive mortgage deals it'll remain best usually to use ISAs before mortgage overpayment or offset accounts. For emergency money that you draw on regularly or for short term savings a mortgage with offset account can be helpful. The difficulty is that an offset mortgage normally has a higher interest rate than a flexible mortgage so the amount of money in the offset account usually has to be more than 20%-30% of the mortgage balance before it can make sense. But for people with irregular work if can be very beneficial for cash flow smoothing to accumulate a large offset balance that they can use to live on when they are between contracts. The offset accounts are effectively savings accounts and depositing and withdrawing several times a month is fine.

Next in line are conventional flexible mortgages. These have lower interest rates than either current account or offset mortgages and usually have the feature of allowing overpayments and drawing down (withdrawing) of overpaid money at the (usually given) discretion of the mortgage lender. These are a cheaper and hence faster to clear the mortgage choice for people who expect to routinely overpay the mortgage and don't expect to withdraw more than a few times a year.

It seems likely that a standard flexible mortgage is your best choice that will offset savings against the mortage (via the mortgage overpayment account) but you should also look at non-flexible mortgages since those offer lower rates and it seems unlikely that you will need the features of a flexible mortgage.

Unless your other mortgage is at a rate higher than 6.7% it seems extremely unlikely that you will pay off your mortgage more quickly or cheaply with a One Account mortgage. Fastest and cheapest is likely to be a conventional or flexible mortgage. Flexible if you're paying off much more than the best conventional deal allows and won't be able to overpay by remortgaging a time or two and reducing the amount borrowed then.

If your existing savings that you want to use are in ISA accounts you would be extremely unlikely to be better off using them for offsetting in any type of mortgage. The only reason it makes sense to use ISA money for the One Account is that it's rate is effectively SVR all the time so it's hard to find ISA accounts that beat it. Not so for more competitive mortgages.

If you want to compare mortgage deals, I recommend using the Egg Mortgage Calculator. It's valid for all modern mortgages with daily interest calculation, including the One Account. Just put in the correct rates and monthly payments (using the overpayment entry) then compare the total amount paid with each deal. Add setup fees to the amount borrowed. For the One Account, subtract the average current account balance from the amount borrowed and then add the same amount to the cost and extra months to pay it at the end to cover building it up again at the end of the mortgage. Make sure that you include the full monthly payments in all comparisons, so that the total monthly payment including overpayments is exactly the same in all cases.

The One Account is a really flexible mortgage. Unfortunately the interest rate is usually so high that it takes longer and costs more to use it than one of the other mortgage types. The few exceptions are traders who put in and take out huge portions of their mortgage each month and those who do not organise their finances to effectively use all of the great tax breaks (ISAs) and savings accounts (regular savers paying 7.5% before tax!) available.

wymondham

James, credit to you for being able to focus at 5am in the morning, yet alone speak sense.. good post.

melie3

the one accounts not for everyone.
if you are very good at looking after your money then it should work for you. i have had it since 2004 and not paid 1 p off it yet, always upto my facility. im learning though, the hard way of course, and have exceeded my facility, letting me pay my arrears off in 6 monthly instalments. but they do have excellent customer service not outsourced to foreign countrys. another good or bad thing is you get a visa card, which if you spend on comes out of your account every wednesday night. again caution required!

powerful_Rogue

Im really drawn to the one account as I love to keep tabs on my finances.
I currently have a £72K mortgage and a £8K loan secured against the house. Im paying $430 a month for both combined. Income each month is £1700.

I have two years left of my fixed rate mortgage with the halifax, so im presuming i'd have to wait till then to swap over to the one account.

This is my first mortgage so im new to all this!

jamesd

Yes, you'd probably pay a significant exit penalty if you switched out of a fixed rate deal now. Even if you could switch, if your income is regular rather than as a business it's not so likely that you'd be better off with a One Account mortgage compared to an offset or flexible mortgage.

kezzamc

my partner and i have a joint mortgage with northern rock, fixed rate for 5 yrs. We have only been with them for 1 year but after speaking to a friend who has got a oneaccount mortgage i looked into it and it seems very appealing.

Could anyone offer me some advice..

we would put about £2500 into the account each month.
our current mortgage + unsecured loan total £128K over 25 years only paying interest at the moment on the mortgage.

After the usual bills i expect we will have between £500 and £1000 left over.

How would this work in a One Account? Would it work...? or should we stick with Northern Rock and simply overpay them?

Im still new to mortgages despite actually having one in my name!

PLEASE HELP!

wymondham

hi kezzamc

if you've been with Northern rock for just 1 year, is there a tie in? This might be a significant amount??

Being suitable for the One Account depends on many factors - how mature you are about money and managing your finances sensibly being one of the biggest ones (if you give in to temptation easily etc then forget it), so only you can answer this..

In answer to your question, add your current mortgage payment amount to the amount you have left over each month currently, and this is the amount you will theoretically pay off your mortgage each month. This will obviously be variable, but don't forget that the money has not 'gone' as such so it's available if you need it.

As you're with Northern Rock you'd probably be best staying with them, especially so soon into a deal, unless there is a specific reason you like the One Account..

let me know if you have any other questions....

jamesd

kezzamc, it looks extremely unlikely that you'll benefit from a One Account mortgage because you'll have the mortgage for too long with too little overpayment and a low average current account balance.

Starting out with the Egg mortgage calculator which is valid for all modern daily interest calculation mortgages, 128k for 24 years remaining at 6.7% (though you probably don't qualify for that "low" a One Account rate) gives 894.66 a month to pay.

Assuming 2000 average current account balance and reducing the amount borrowed to 126k to account for it reduces the monthly payment to 880.68 for 24 years, plus three months more to get back the 2000 average balance that was used to clear the mortgage a bit "early". Total cost 253,635.

Now say you overpay by 750 a month. That ends the mortgage in 8 years and 6 months (plus 2 more for the current account balance recovery) for a total cost of 165,360.

Big difference between 253,635 and 165,360 so that looks good, though remember that this is too low really because it's assuming a loan to value that's probably much better than the one you actually have.

But I don't know your current Northern Rock interest rate so I'll assume that it's 5.75%. No current account offset here so the amount borrowed is the full 128k. With no overpayments the monthly payment would be 820.41 and the total to pay over the whole mortgage would be 236,278. Now with a 750 a month overpayment that drops to 162,687 and 8 years 8 months (but no extra time to build up the current account balance.

And that's cheaper than the best One Account rate. If you can say your actual loan to value and your current Northern Rock interest rate it'll be possible to give you a more accurate comparison but it seems unlikely that the One Account will help.

monkeyman120168

I apologise for possibly asking silly questions but hubby & I are intrigued by the one account. Have just typed in details & the reduction in the time to pay off our mortgage seems too good to be true (& in my experience if it looks too good to be true, it usually is!!!). Having just reduced the cost of our life cover for the mortgage & general life cover also, we are desperate to reduce our outgoings as much as poss & chuck as much money as we can at the mortgage. Could I ask for help from some of the more experienced money savers out there??
House value £265000 (don't know if that's relevant but just in case...)
Mortgage £86000 - 18 years to go
Income £2700 net into bank each month + any money from sales on Ebay!
Anticipated money left over £750 per month (I take it you include your current mortgage repayment in this figure as you are not effectively making a payment?)
Savings to go in £3000

The one account has calculated we can repay our mortgage in 5 yrs, 10 months - nearly fell over!!! Can this be right?
Any help or advice would be much appreciated. I also would like to know how we go about getting this referral from other MS as if we can both save a bit of money then why not. As my employers like to say "Every little helps!!"
Thanks in anticipation.....

FreedomGirl

Hi,

I have a Oneaccount (and have nearly paid it off).

I must admit that, when I saw your predictions, I couldn't quite believe it, and went to put the numbers in the calculator myself! Yup, got roughly the same numbers.

I then thought, hang on, maybe you need to consider interest payments as part of essential monthly outgoings...

Now, there is another calculator window, called, how much will it cost, which calculates the monthly cost

https://service.oneaccount.com/DAPP/payments.do

You would have a monthly interest payment of £456.50 coming out of your account at first, and, in order to repay the capital as well you would need to leave behind about £200 each month in your account.

So, if you have a mortgage payment of £650/month, say, that would leave with £100 extra/month to leave in the mortgage, if your surplus (including mortgage payments) was £750/month.

Do check my numbers, though.

I love the One account. I still remember 7 years ago, getting my first statement and realising that we were going to pay £1000 in interest that month (it was 150K mortgage). B*gger that, I thought, and went about gathering all the savings, reducing the outgoings, and, we're almost there (paid off) seven years later. But that is due to fairly large savings (1/3 of original mortgage value) and two healthy salaries.

You have to both have a certain type of outlook (and we didn't have it, but got away with it because of strong financial circumstances - it would have been easy to get into trouble if we lost one salary at that point).

We've definitely spent money on large ticket items (holidays, cars) because we can "put it on the One Account".

That stopped back in 2004 - we ended up having to take the One Account cards out of our wallets

We now track every spend and set budgets. If you have a relatively small difference between incoming money and outgoings, then I would suggest this sort of financial discipline is a good idea to avoid backsliding the wrong way into that very very (and very!) large overdraft.

Don't give up yet, because, for people who can make it work, the One Account is great. Maybe try 6-12 months of financial monitoring (a dummy run) and put the surplus in an ISA before you take the plunge?

HTH

FG