Current Account Mortgages

How Savers Can Benefit From Current Account Mortgages

Red TapeCurrent account mortgages are now a big part of the UK mortgage market, as more and more people turn to flexible mortgage products. Flexible mortgages make up 20% of the UK mortgage market and is expected to grow*. Current account mortgages have a lot of flexible features, but many analysts believe they work best for people with savings. Here's why.

A current account mortgage, like other flexible mortgages, allow people to balance their savings against their home loan to reduce the amount on which interest is charged. To do this, they usually need to put everything into one account - and throw in any other loans and credit cards as well. In fact, some people find current account mortgages a good way to consolidate their debts. Be warned, though, using this means of debt consolidation means that you could be spreading a short term debt over 25 years, which is the standard mortgage term.

AdvertThe more savings you have, the less interest you will have to pay on a current account mortgages. This is why some analysts believe that current account mortgages work best for people who have as much as 20 per cent of the property value in savings. This will wipe a hefty chunk off the interest bearing loan.

Requirements For Current Account Mortgages

Most current account mortgages also require you to pay your salary into the account, and perhaps this is why they must be repaid before you retire. Don't worry, though, current account mortgages have a number of flexible features which mean should have cleared the debt well before the end of the term.

To start with, repayments are usually set at the start of the mortgage term and then reviewed at intervals, so if you're a steady saver, every time you put money into the account you'll be reducing the interest component of your payment. That means you are overpaying every month, so at the end of the year your outstanding balance should be considerably less.

Savers and borrowers can also formalise this arrangement by overpaying on the mortgage, usually without penalty. Current account mortgages also allow underpayment and payment holidays (provided you have previously overpaid) so if circumstances change or you need to draw on your savings the flexibility is there. If you're able to repay early, and it's not within a preferential rate period, this is usually without charge. However underpayments and payment holidays could increase the mortgage term and/or the total amount payable

Earning Interest With Current Account Mortgages

Some savers may see a disadvantage to current account mortgages, because they will no longer earn interest on their savings. AdvertHowever, because they are reducing their mortgage interest and not having to pay tax on savings interest, they are making more of their savings than if they sat in a savings account earning the average UK interest of 2.85 per cent**.

Current account mortgages require discipline, especially if savers plan to repay the mortgage early. Just because you've got a £40,000 overdraft, it doesn't mean you've got to use it. Instead, let your savings sit there and add to them if you can, because there's a special bonus for borrowers with current account mortgages. Most mortgages of this type are repaid a few years early. Lenders estimate that savers who at least maintain the savings they have at the start of the mortgage term could shave up to ten years off the standard mortgage term. This means that, provided the interest rate stays the same, holders 25 year term current account mortgages could be mortgage-free within 17 years.***

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