Re: Overly overdrawn?

On Wed, 10 Oct 2007 18:41:34 GMT, the Omrud <usenet.omrud@xxxxxxxxx>
wrote:

rat@xxxxxxxxxxxx had it ...

A friend used to have a single account which was tied to a line of
credit, with which he had purchased his house. His paycheck was
automatically deposited, and he was able to write cheques on the
account, withdraw money, and set up automatic payments. I remarked
that it must be strange to have a cheque deposited and see an account
balance of -$70,000, but he said he got used to it.

That's reasonably popular in the UK - it's called an "offset loan"
(or mortgage). I've never taken a mortgage on that basis as I could
always get better rates by buying special fixed-term deals, but I did
take a car loan from a bank where we had more invested than the
amount of the loan. The loan interest was offset against the
interest earned on the deposit. However, because I pay 40% tax on
earned interest, but there is no tax relief for loans, the net effect
was to reduce my earned interest by less than the loan would have
cost without this facility; forgoing interest is better than paying
interest.

The outstanding amount of the loan was reduced each month by paying
across from the savings account, but the advantage (which I never
took up) was that I could have withdrawn all the savings at any time
and simply started paying the interest on the loan.

With mortgages and salaries, this type of offset account can reduce
the interest paid each month quite considerably, on the basis that
you may have an average of half your salary in your account at any
time, so your mortgage loan is calculated on a lower amount than the
actual amount outstanding.

All that's true, but I think there is a distinction between an offset
loan and a mortgage current account.

In the first you have a loan of so much in one account and a credit of
so much in another, and the interest earned on the latter offsets some
of the interest to be paid on the former.

In the second - which is the one Oleg described above, your current
account actually has a negative balance at all times.
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