What Is A Current Account Mortgage
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Understanding Current Account Mortgages
Overview
Current account mortgages, a type of flexible mortgage, have been available in the UK for over a decade. These mortgages merge your mortgage and current account into one. For instance, if you have £3,000 in your current account and a £100,000 mortgage, your account will display a balance of £93,000 overdrawn. Interest is calculated daily on this figure, and any leftover income automatically reduces your mortgage debt.
How It Works
With current account mortgages, any funds retained in your account reduce interest payments significantly. To maximize benefits, synchronize bill payments towards the month's end. Every deposit decreases your overdraft, while every withdrawal increases it.
Financial Advantages
These mortgages allow you to apply the lower mortgage interest rate to all borrowings, including credit card debt. While this can save money over time, it's crucial to repay non-mortgage debts quickly. Extending such debts over the life of a mortgage?"say, 25 years instead of just a few?"could result in paying more interest overall.
Features of Current Account Mortgages
The market offers a variety of these mortgages, each with distinct features such as:
- Overpayments
- Payment holidays
- Underpayments
- Credit card and loan facilities
Be aware of possible restrictions on withdrawals and fees like early redemption penalties.
Interest Rates
Generally, you may face higher interest rates with current account mortgages due to their flexibility and the potential risks for lenders. If managed well, both you and the lender can benefit.
Potential Downsides
The primary challenge with current account mortgages is maintaining strict financial discipline. Resist the urge to spend large amounts just because they are accessible. The sizable debt visible in your account may also be daunting when viewed daily.
Consulting an Independent Mortgage Broker
Given the diversity of options, an independent mortgage broker can provide valuable advice, helping you determine if a current account mortgage suits your needs.
Conclusion
By uniting your mortgage and current account, these mortgages offer flexibility, such as the potential for overpayments that can accelerate mortgage repayment. Although relatively new, their popularity is on the rise as more homeowners appreciate their advantages.
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