How To Control Your Finances With A Cheque Book Mortgage

If you like the feeling of being in control of your money, then a cheque book mortgage might be right for you. A cheque book mortgage is a type of flexible mortgage where all your borrowings are in a single account. It's a mortgage with a cheque book, hence the name cheque book mortgage. But don't worry; most cheque book mortgages also issue debit cards and cards similar to credit cards, so you can still max the plastic if you fancy a spending spree.

A cheque book mortgage wraps all your borrowings, such as mortgage, credit card debt and loans into the same account as your savings and current account. It is also known as a current account mortgage. The effect of this is to use your credit balances to offset your debts, like an offset mortgage. This means that with cheque book mortgages, borrowers pay interest only on the total debt, which means more of their mortgage repayments are used to clear the outstanding loan.

Lenders handle a cheque book mortgage in different ways. Some lenders provide borrowers with a single statement, so that every month they appear to be overdrawn. Other cheque book mortgage lenders report on borrowers' accounts in the usual way, which makes it easier to see how they are benefiting from the offsetting process.

Interest On Cheque Book Mortgages

Once upon a time, if you had a cheque book mortgage, the interest rates charged were higher than for standard mortgages. That difference is shrinking and some lenders have the same interest rate for cheque book mortgages as for their standard mortgage products. This interest rate is applied to all borrowings, so cheque book mortgage holders who include their credit card debts and loans will benefit from a much lower rate of interest than they would normally pay.

Since a cheque book mortgage is a flexible mortgage, borrowers can usually benefit from overpayment, underpayment, lump sum payment and early repayment. Some mortgage lenders allow cheque book mortgage borrowers to redraw funds up to the original limit on the mortgage. Others set a reducing limit each year, and still others allow borrowers to draw up to 99 per cent of the property's value. In this way, cheque book mortgages are extremely flexible, allowing borrowers to manage their mortgage to suit their lifestyle and finances. Remember underpayments and payment holidays could increase the mortgage term and/or the total amount payable.

Who Benefits From Cheque Book Mortgages?

While a cheque book mortgage may not suit everyone, there are some people who can benefit from the flexibility that it offers. Someone who receives regular lump sums in the form of commission or bonuses might be able to use these to reduce the balance owed on his cheque book mortgage. A self-employed person with variable income might be able to overpay when she gets a big cheque and reduce the payments on her cheque book mortgage when money is tight.

One feature of cheque book mortgages will please everyone, though. If you want to overpay on your cheque book mortgage because of the daily calculation of interest, most borrowers will repay their cheque book mortgage several years early. Since most people want to be mortgage free as soon as possible, this is a major advantage of the cheque book mortgage.

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