Wednesday, July 27, 2005

Mortgage, Checking Account Hybrid Offered

(July 27, 2005) -- U.S. homebuyers, already being courted by banks and mortgage companies with a variety of innovative cost-saving financing products, can now add another option to the menu: a combined vehicle that acts as a home loan, equity credit line, and checking/savings account all at once.

A favorite of English and Australian borrowers, the product is being introduced to the United States by Pacific Trust Bank—which claims that users can potentially save thousands of dollars in interest and pay off their loan faster by taking out a mortgage and simultaneously opening up an associated demand account padded with payroll checks, funds from maturing CDs, money from savings accounts, and other investment money.

The mortgage payment is deducted automatically from the demand account, while checks and debit cards are used for other withdrawals; the more money left in the account, the greater the reduction in the principal balance of the loan as well as in the following month's finance charges.

Pacific Trust's Green Account, as well as a similar product offered by at least one U.S. mortgage company, promises to garner interest in high-cost housing markets such as San Diego, the San Francisco Bay Area, Boston, and Washington, D.C.; and while observers say it will best serve disciplined and financially comfortable borrowers, they warn of possibly risks for those who rely too heavily on credit or who max out their home equity line of credit.

Source: American Banker (07/27/05); Kuehner-Hebert, Katie

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