What Is A Current Account Mortgage?
Current account mortgages are a type of flexible mortgage and they have been around for well over 10 years in the UK. Current account mortgages work by combining your mortgage and current account into a single account. For example, if there is £3,000 in the current account and the mortgage is £100,000 the balance in the account will show £93,000 overdrawn. The balance is calculated daily and the homeowner only pays interest on the balance. Any saved income you have in your current account at the end of the month is automatically deducted from the mortgage debt you owe. If cash is allowed to build up in the current account mortgage, the savings on interest payments can be significant. For maximum gain, bills can be synchronized to be paid at the end of each month. Every time money goes into your current account, you reduce the amount of the overdraft and every time you take money out, the overdraft increases.
Current account mortgages allow the interest charges on all your borrowings, including credit card debt, to be at the cheaper interest rate of the mortgage, instead of the average credit card or loan rate. So you can save money in the long run, you still need to pay off the non-mortgage debt as quickly as possible. If you simply add these debts to your mortgage and pay them off over 25 years, instead of 3 or 4 years, overall you’ll pay more interest.
Different features with Current Account Mortgages
There are a wide range of current account mortgages in the marketplace. Different current account mortgages come with different features such as overpayments, payment holidays, underpayments and credit card and loan facilities. Some current account mortgages include a restriction on withdrawals, overpayments and underpayments and some include fees and charges, such as early redemption penalties.
In general, you will find that you pay for the flexibility of a current account mortgage through a higher rate of interest than more traditional mortgages and because the lenders are also taking a risk with current account mortgages. They will make less money on the mortgage if you pay it back early, or they might not get the money back if you are unable to discipline yourself and make your repayments. A current account mortgage works both ways and if you get it right, in particular the management of it, then it will benefit both the lender and the borrower.
The Downside of Current Account Mortgages
The downside with current account mortgages is financial discipline. You need financial discipline and planning to properly maintain current account mortgages and to be able to resist the temptation to use the large sums of capital available.
The amount of debt visible on the current account balance, in the tens or hundreds of thousands, can also be intimidating to borrowers when viewed on a daily basis!
Benefits of Using an Independent Mortgage Broker
Due to the range of current account mortgages, independent mortgage brokers can advise and give you information, as well as being able to judge suitability for having a current account mortgage.
Current account mortgages combine your current account and mortgage into one account. They offer flexibility with options such as overpayment which can allow you to pay off your mortgage quicker. Although current account mortgages are fairly new in the marketplace, their popularity is increasing as more home owners recognize the benefits they offer.