A current account mortgage is a type of flexible mortgage product that combines several financial products into one single account.
As with any other mortgage product, a current account mortgage will be secured against the borrower’s home. Current account mortgages are not usually secured against investment properties.
The main difference between a current account mortgage and a standard mortgage product is that the current account mortgage will act as both the borrower’s home loan and current account.
Current account mortgages are often referred to as a “line of credit”.
The borrower will normally be required to have their salary or wage paid directly into the current account mortgage and will be allowed to withdraw money from the line of credit as required – within a pre-determined upper limit.
In addition to combining the mortgage with a current account, it can also be combined with credit cards, personal loans, and cheque book facilities in order to streamline the borrower’s overall banking facilities into one product.
As well as helping to streamline the borrower’s banking facilities, a current account mortgage can offer flexible features that standard mortgage products do not, which can further assist the borrower with managing their personal finances.
Because a current account mortgage is a type of flexible mortgage it can offer features such as overpayments, underpayments, drawdown of overpayments previously made, additional borrowing facilities, no (or low) redemption penalties.
In addition to flexibility, a current account mortgage can help the borrower save interest and pay off their home sooner. This is due to a combination of factors such as earnings being paid directly into the mortgage, daily interest rate calculations, and no high interest loans (e.g. credit cards) to pay off simultaneously.
A current account mortgage can, therefore, provide a borrower with many features for organising their personal finances and paying off their mortgage as soon as possible.
However, despite the benefits, it is important for the borrower to remain disciplined because excessive withdrawals will increase the overall cost and term of the mortgage and negate the benefits offered.
Because of this, careful consideration should be given before applying for a current account mortgage. Professional advice may be sought from an independent mortgage adviser.
A large amount of mortgage schemes penalise you, somewhat unfairly, if you make regular overpayments. This can make life difficult if you do not earn at a regular rate if, for example, you are self employed or bonuses make up a large part of your pay check. However, a Flexible Mortgage can be a source of much needed respite for many people, particularly in these troubling financial times. A Flexible Mortgage is designed to fit around your life style, allowing you to overpay and underpay as it suits you. Several other options are offered depending upon the lender.
It is designed for people who will primarily overpay, so might not be the best option for people who are worried about redundancy. If you do regularly overpay, you will not be penalised, as there are usually no early repayment charges. In a Flexible Mortgage, the interest will be calculated straight away, meaning you will receive full benefit from your overpayments.
Making overpayments is also heavily rewarded. It allows you to make underpayments when in troubling financial circumstances, allow you to stop payments for a short while and sometimes even borrow back a lump sum, depending on your past over payments. If you are planning on having children, a payment holiday can be ideal when having a child. The lump sum option can be a great asset to have in case of unpredictable emergencies.
However, this type of mortgage can be complicated, so a good mortgage broker is a definite must have.