Current Account Mortgages

Current Account Mortgages

Current account mortgages are actually a very large overdraft. All your debts are combined with all your income in a single current account. This works by every time you pay money or salary into your account you reduce the amount of the overdraft and every time you take money out, the overdraft increases, so you can overpay or underpay without being penalised for it. You need to repay the loan by a set time either by bringing the overdraft to zero or by using a separate investment such as an ISA to repay your capital by the set time.

One of the good things about the current account mortgage is that the interest charges on your borrowing is at a cheaper variable rate. In the long run its best to pay this non-mortgage debt off as quick as possible the same as a credit card or loan say within 2 or 3 years otherwise you would end up paying off far more interest if you added these debts to your mortgage and take 25 years to pay them off.

To offset your mortgage costs you could use your savings and your current account to pay it off more quickly. Also, if you are a 40% taxpayer you would not pay any tax on the reduced interest you pay, so you could actually save interest on your mortgage.

The rates on current account mortgages and flexible mortgages are usually higher than the best deals you get for a fixed rate or discounted mortgage. So you need to be very sensible and overpay when you can and pay the debt off as soon as possible otherwise you need to seriously do some sums to see if you would be better off financially in taking this route, or better off with a more traditional mortgage and before you do this you need to seek proper financial advice to find out which is the best deal for you.