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.
If you’re in the process of buying a house, you may have come across the phrase “interest only mortgage”. As the name suggests, this is where you simply pay the interest and nothing else for the duration of the mortgage. There are pluses and benefits to these types of mortgage, and as long as you’re aware of them, and can afford to take it out, then an interest only mortgage may offer you a workable solution to affording your first home.
The Pros
Perhaps the most obvious part of an interest only mortgage is that because you’re only paying the interest on your house, the payments are a lot lower than what they would be on a more traditional mortgage. Since the interest on a mortgage is only a small percentage of the overall cost, then that shows in the monthly payments. This allows you to be able to have more “free money” each month, which of you’re just starting out on the property ladder can make all the difference.
An interest only mortgage also allows you to make better use of that extra money. For example, you could put it into a high yield savings account, or stocks, or even another property, which you could then rent out. This would then see you having residual income every month, which you could then transfer to your high interest savings account to pay for your mortgage at the end of the loan period.
The Disadvantages
Although an interest only mortgage offers many advantages over a more traditional mortgage, there are also the downsides to it that you should be aware of before you sign up for one.
Ironically enough, the big advantage of this type of mortgage is also one of its biggest disadvantages. Because you’re only paying the interest on the loan itself off, you’re not taking anything off the principle sum, or the mortgage itself. Therefore, when the end of the mortgage period comes round, you’re going to have a substantial amount still to pay. Unless you’ve saved for that time, you could find yourself coming up short and losing your home, even if it’s 25 years down the line.
If you decide that you do want to take out an interest only mortgage, there are ways that you can help yourself prepare for the end of the repayment term. These include:
Paying into a monthly savings or investment account Sell another property (if applicable) or use any inheritance you may have Switch to a repayment mortgage throughout the duration of the interest only one. This is especially popular with people who find themselves promoted to a higher paid job, for instance Sell the actual property to pay for the loan
These methods all have their pluses and minuses, and some are more attractive than others. This is why it’s important for you to be completely sure that you understand what’s involved with interest only mortgages, and whether they’re right for you, before signing up for one.
The typical American household budget percentage breakdown looks like the list below. For most of the categories a range is shown. A range makes more sense to help you see where your personal budget fits (or doesn’t fit.) If your budget doesn’t fit the typical American household budget, rejoice! The average American household budget is jacked up – we carry too much debt and we just don’t save enough. We’re so worried about our neighbor’s new pool, our co-worker’s new car and our friend’s new designer shoes that we spend more than we earn to try and keep up. But take heart! Review the percentages below, compare your household budget and then read on to find out how you can move yourself into the elite minority of Americans who have mastered where their money goes.
Typical Household Budget Percentages
33-38% Housing (59%-66% of this is on shelter – mortgage interest, property taxes, repairs, and rent, and other items) 15-19% Transportation (up to half of this is vehicle purchase – 2 cars per household average) 13-14% Food Budget (55% at home, 45% away) 0-2% Alcohol 0-3% Tobacco and related products 0-2% Caffeine related products 4-5% On clothing and related services (drycleaning) 4.5 – 6% on out of pocket Health Care 9% Personal Insurance and Pensions (breakdown: 1% life and other personal insurance, 7.5% Social Security, .5% investment 5% Entertainment 2.5% Charitable Contributions 2% Reading and Education 1% Personal Care products and services 2% Miscellaneous 4% Credit Card, Consumer Loan Interest
If your budget closely matches the above, here’s what you can do to fix that. Do these in order. Do not proceed to the next step until you’ve addressed the current step:
Stop using your @#!&*! credit cards! Make a down and dirty budget right away! Don’t worry about it being right at first…you can perfect it over time. Just do it! Cut back on your easy to identify, frivolous spending habits (3 dollar lattes, magazines, 450 extra satellite channels, etc.) If you’ve got some expensive habits you’ve wanted to quit for some time, now’s the time. For example, if you’re a hard-drinkin’, chain smokin’, coffee drinkin’ fool, you can reap a windfall of up to 7% or more of your income! Just cutting back to 2 drinks per day, only drinking coffee from home and quitting the cigarettes will net you a nice amount of extra cash and add years to your life! Refine your budget after eliminating what you can. Reduce your 401K and other investment payments (if you have any) to the minimum allowable to keep your 401K and/or other investment accounts open. If your employer has a stock matching plan, keep that in addition to the minimum to keep your investments accounts open (but only up to the minimum you need to get all the matching money.) You’re going to reap a whole lot more return on paying off your debts than you can ever hope to reasonably get from traditional investments. If you’re paying into a college fund for your kids – keep doing that – if you’re not and you really want to, hold off until step 6. Refine your budget to reflect the extra income available, if any. Build an emergency fund equal to 2% of your gross annual income. It should be a little hard to get to (like a separate checking account or mutual fund), but not too difficult (Certificate of Deposit.) Work this into your budget – it’s very important. You will not believe the amount of stress that will melt away when you do this. Pay off your debts – everything except mortgages. And don’t just move your revolving debt into a second or third mortgage – that’s bad. Pay them off using a rapid debt paydown system. Pay off any student loans (for future reference, these are a bad idea.) Pay off your car(s) too. If you’re not upside down on a car loan (your car is worth more than you owe) you can sell it and get a cheaper, paid for car. Throw a small (inexpensive but fun) party for yourself and your loved ones every time you pay off a debt. Take all the money you WERE spending to pay off your non-mortgage debt and start putting it into those investment accounts you put on idle. Make sure you’re investing at least 10% of your gross income. If you followed steps 1-4 exactly, you should have lots of breathing room in your budget now. If this is true and you want to invest more than 10%, go ahead, but be sure to reward yourself too and live a little. Grow your emergency fund to a level you’re comfortable with (2 or more months of income is a good start.) If you have young kids and you want to send them to college, start putting money into a college fund of your choice for them, if you haven’t already. Throw a bigger party than usual when this is done. Pay off your mortgage and throw your biggest party yet! You can start towards this by refinancing to a single fixed rate mortgage (your credit should be in pretty good shape having paid off all your other debts.) If it’s a 30 year mortgage, pay more than your monthly payment to dramatically lower the amount of interest you give to the bank. If it’s a 15 year fixed – wow! That’s excellent! When you’re totally debt free, regularly give away whatever you think you can afford. It’s good for the soul!
Easy? Not. Worth it? Doing the above will pay dividends in your life in many more ways than just dollars and cents. You will assure yourself a dignified and financially secure retirement. Do this well and you will also build a way for your kids and your grandkids to enjoy prosperous lives, and they will remember you with fondness and respect long after you’ve moved on to the other side. Now get started!
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.
It appears that rising interest rates have had little impact on the UK housing market as the Association of British Bankers have revealed that mortgage lending in July 2007 increased by