British Pool Mortgage, Income, Savings, Loans, Credit Card Balances into `One' Account to Reap Lowered Interest Rates

WASHINGTON – British credit unions and banks are raving about a product that pools all of an individual’s loans and savings under one umbrella potentially lowering interest rates on all outstanding debts. Callahan & Associates Inc. has released a report on the “One” account, a product that brings an individual’s mortgage, income, savings, loan and credit card balances into a single account. The One account holder can reportedly earn a higher, tax free return on savings, borrow at one low rate and reducing overall interest and pay a mortgage off earlier potentially resulting in less interest payments. First introduced in Britain in 1997, several banks have since adopted the One account and are reporting significant changes in interest payment savings with mortgages and other debts. It is a secured personal bank account with The Royal Bank of Scotland plc and administered by The One account Ltd. As of June 2003, 110,000 customers had 6.4 billion ($8 billion in U.S. dollars) in assets under management through the accounts. “While it may be in the interest of the traditional banks to charge different rates of interest for savings and borrowings, it certainly doesn’t benefit their customers, Jayne-Anne Gadhia, One account managing director said in a press release. “One account customers like the fact that they are constantly minimizing their borrowing and they can repay their mortgage several years early.” Here’s how a borrower sets up the account: bank officials ask customers for home, employment, income and personal finance information. The amount borrowed is based on all of the information provided. The customer’s home is then appraised and a formal offer from bank officials to open the account is typically offered here. The customer can choose to transfer any other outstanding debts to the account by providing the names of all debt holders. Opening an account typically takes up to six weeks. While there are no application fees to set up the account, the customer will have to pay the appraisal fee upfront, any land permit fees and legal fees. The fees are required since the One account is a mortgage secured on the customer’s property. Once the account is set up, interest is calculated daily and interest is applied on a monthly basis. When money is borrowed from the account, the capital and interest can be repaid in three ways: capital and interest; interest only and mixed. With capital and interest, the customer needs to reduce the overall balance of the One account down to zero by the end of the term by leaving the funds there and not spending them. Because there are two parts to the loan – the capital and the interest – the account holder needs to leave enough money in the account each month to cover the interest and to repay some of the capital. With the interest only option, the customer pays the interest over the term of the mortgage and then repays the capital as one lump sum at the end of the term. The customer must make arrangements to repay the capital at the end of the term or risk losing his or her home, according to One account information. The `mixed’ option combines both capital and interest and allows for gradual repayments of the amount borrowed over time and an investment option to make those repayments. Account holders can keep track of their repayments over the phone, online and through a monthly statement. One account also provides an annual review showing how the balance has changed over the year and how it compares to the repayment guide. If the account holder’s home goes up in value, he or she can have it reappraised to potentially release more equity or have the interest rate lowered on the One account. If the homeowner moves, the account is transferable. Last year, nearly 90% of One account holders (were) ahead on their mortgage repayment plan, Gadhia said. At press time, no information was available on whether the accounts were poised to launch in the U.S. [email protected]