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Mortgage Information - Current Account Mortgages


Current Account Mortgages - Mortgage Information


What is a Current Account Mortgage?

Current account mortgages are quite different and work by turning your mortgage into a large overdraft. They allow you to set off all the savings you have against all the debts you that owe. You combine all your debts with all of your income in a single current account. So every time your salary is paid in, you reduce the amount of the 'overdraft'. Every time you take money out, the overdraft increases. This means you can overpay and underpay without being penalised for it. You have to repay the loan by a set time, either by gradually reducing your borrowings to zero (just like a repayment mortgage) or by using another investment such as an ISA to repay your capital at the appropriate time (similar to an interest-only mortgage).

The good thing about current account mortgages is that the interest charges on all your borrowings are at a cheaper, variable rate for mortgages instead of the more common credit card rates. To compensate for this, rates on current account mortgages, and also flexible mortgages, tend to be slightly higher than standard mortgages. Therefore you may need to do some sums to see if you would be better off taking this route.

You can also use your savings to offset your mortgage costs, thus paying it off more quickly. There are tax advantages too, particularly if you're a 40% taxpayer. You don't pay any tax on the reduced interest you pay, because of your savings. With current account mortgages, you have to have a certain amount of discipline. You might find it too tempting to just blow your overpayments on that car you've always wanted, only to find you've just been made redundant. Overpay when you can, but only take advantage of the facility to underpay when you really have to.

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before making any important decisions about your finances.