Current Account Mortgage
A current account mortgage offers you the option of combining
a mortgage and a current account. There are two main variations – either
separate accounts for your savings and borrowings, or mortgages
where your money is combined in one single account.
A current account mortgage can be viewed as a large ‘overdraft’.
When your salary or other money is paid into your account each
month the overdraft is reduced and therefore so is the interest.
Even when you make withdrawals from your account over the month,
because the total overdraft has been reduced, the interest applied
is lower and the time you take to pay off your mortgage may be
reduced.
Offset Mortgage
An offset mortgage offers you the option to offset the balance
of your mortgage against any money you have in a savings and/or
current account with the mortgage lender.
If you have a large balance of savings which are not being used,
you may benefit from offsetting them against your mortgage, thereby
reducing the interest you have to pay.
Advantages of Current Account and Offset Mortgages
- As soon as your salary and other money is paid into
your account, it starts to reduce the amount you owe on your
mortgage or the
amount is offset against your mortgage and therefore reduces
the interest payable
- Can be useful if you would like the option
to make overpayments on your mortgage, for example if you are
self-employed or receive
irregular bonus payments. However many lenders now offer the
option of paying off up to 10% of the mortgage loan a year on other mortgage
types
- Interest is calculated daily, so any payments into your
account work to reduce the interest you have to pay straight
away
- You may be able to borrow more than the initial mortgage
amount- perhaps for some home improvements - up to an agreed
limit.
This lets you borrow at the mortgage rate, rather than taking out a
loan which is often at a higher interest rate
Drawbacks of Current Account and Offset Mortgages
- These mortgages
can be difficult to understand as they are quite complex
- You need
to be disciplined to make sure you keep on track with your mortgage
payments
- Many current account and offset mortgages feature a variable
rate which means that an increase in interest rates would
be reflected in increased monthly payments
- You may be required to move your personal
bank accounts to the mortgage lender
Your home may be repossessed if you do not keep up repayments on your mortgage.
A fee of up to 1% of the mortgage amount may be charged depending on individual circumstances.A typical fee is £95.
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