Current Account Mortgage

Current Account Mortgage - The Facts

When you're ready to choose a current account mortgage, it's important to know what to look for. You'll need to know their main features and what kind of deal you can get. But before you get that far, you will need to know how a current account mortgage works - because ignorance will lead to misuse, which in turn could lead to more debts and more costs. But if used properly, these deals will save you money from the outset and will give you the chance to pay off your mortgage faster - something that many people are looking to do in this falling property market.

Most people are familiar with the concept of a current account. That's where your salary is paid in every month and where you draw it out to spend over the course of the month. A current account mortgage works on the same principle, but with much larger sums of money. It is often compared with an offset mortgage, because the underlying principle is the same. People can use their credit balances to offset their debts, so that they pay less interest. It's a simple sum: subtract your savings, or current account balance from your mortgage loan to get the amount you pay for the current account mortgage.

Unlike an offset mortgage, a current account mortgage bundles all of your money into a single financial pot - mortgage, savings, loans, credit cards - the lot. It can be scary because borrowers have an account that is almost always in the red. But if you get your head round the fact that the debt is offset against your home, which could well increase in value, you will soon realise it's not like an overdraft at all.

Like other flexible mortgage products, current account mortgages allow borrowers to customise the way they manage their finances. With almost every current account mortgage, borrowers can overpay, pay in lump sums and repay early, though with some current account mortgages, there may be a charge if a preferential rate applies. With some current account mortgage products, borrowers can also underpay or take payment holidays if they have previously overpaid. However underpayments and payment holidays could increase the mortgage term and/or the total amount payable.

What everyone will want to know if they are considering a current account mortgage is how they get at their cash and how much cash they can draw out. Again, it's simple. With current account mortgages the lender will fix a borrowing limit. This usually relates to the value of your property, but may also vary according to the regulations of the particular offset mortgage lender. For example, some lenders will allow a current account mortgage holder to draw up to the limit of the original mortgage loan, maybe 10%. However, another mortgage provider may be more flexible and offer 15% - it's all down to your equity, your financial situation and your credit rating.

Most current account mortgage lenders provide a debit card and a card which is like a credit card - the only difference is that current account mortgage holders are still drawing from one account. A cheque book is also usually included.

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