2nd-Mortgage

An open plan is a choice for the borrower to allow the lender or the bank to have a control over his current, savings and mortgage accounts. In an open plan mortgage, the borrower would not have to pay interest for the amount he has in the savings account. Thus the balance amount the person has in his savings and current account would be offset against a mortgage (Offset Accounts Providers – Woolwich Open plan, 2007).

An open plan functions as follows: The borrower has to set a maximum and minimum limit for the amount in his current account. It would be the lender’s duty to transfer the fund from the savings account to current account if the amount in the current account falls below the minimum and to transfer excess amount to savings account if the amount in the current account goes above the maximum, so that the borrower would get more interest for the amount in the bank and at the same time all his loans would be correctly paid off from the current account. In the open plan mortgage, the mortgage account is also linked with this and the benefit is that the borrower needs to pay the interest only for the mortgage amount less the amount in other accounts. Moreover, he would not have to pay tax for the interest earned. Thus the borrower would not have to pay the mortgage interest for the amount in savings account, and the interest he earns for the same money would become tax-free. The lenders also offer lifetime tracker guarantee of the mortgage and allows overdraft facility at the mortgage rate of interest (Open Plan pointless without a mortgage and a tax bill, 2007)

The demand for open plan mortgages is increasing in the UK market, because it would be advantageous for the borrower in many ways. He would have to pay only fewer amounts as interest and at the same time he need not have to bother about the balance in his current account for loan repayment. This would improve his credit score in the long run. If he is a high taxpayer this plan would be more beneficial, since the interest earned on his savings would be tax-free.

References:-

Offset Accounts Providers – Woolwich Openplan (2007) [online] Available at: http://www.mortgages.co.uk/current-account-mortgages/woolwich-offset-mortgages.html (accessed on 5-12-2007)

Open Plan pointless without a mortgage and a tax bill (2007) [online] Available at: http://www.dooyoo.co.uk/mortgages/barclays/397967/ (accessed on 5-12-2007)