How To Use A Current Account Mortgage

Understanding Current Account Mortgages

If you're exploring mortgage options, you may be familiar with common types such as fixed-rate and variable-rate mortgages. However, you might be less acquainted with a relatively new type known as a current account mortgage. If you're considering a mortgage or thinking about switching your existing one, a current account mortgage could be worth your attention.

What is a Current Account Mortgage?

A current account mortgage is one of the most flexible mortgage products available. Essentially, it combines your mortgage and current account into a single account. With this arrangement, all your money, including your wages and any existing credit card debt, is managed within one account. You'll be provided with a debit card, cheque book, and credit card. This setup allows you to manage your finances more holistically, as both your income and debt are handled through this single account.

Benefits of a Current Account Mortgage

1. Simplified Financial Management: Consolidating all your money and debt into one account provides a clear overview of your financial situation. You can easily track how much you owe and your available balance.

2. Daily Interest Calculation: Interest on a current account mortgage is calculated daily, meaning you only pay interest on the current balance. This can lead to significant savings compared to traditional mortgages where interest is calculated monthly.

3. Reduced Mortgage Payments: By depositing your wages and any savings into the account, you can reduce the mortgage balance more quickly. This accelerates the repayment process and potentially lowers the total interest paid over the life of the mortgage.

4. Low Fees: Current account mortgages often come with low fees. You are unlikely to encounter high arrangement fees or redemption penalties, making them a cost-effective option.

Potential Downsides

1. Risk of Overspending: A major drawback of current account mortgages is the potential for overspending. With all your money and debt in one place, it can be tempting to spend beyond your means. The ease of access to funds might lead to excessive borrowing, and by the time you realize the issue, it could be too late to rectify the situation.

2. Requires Strong Financial Discipline: To benefit fully from a current account mortgage, you need to be disciplined with your spending and budgeting. If you struggle with managing your finances, this type of mortgage might not be suitable for you.

Are They Worth It?

Despite the challenges associated with money management, current account mortgages offer considerable advantages. They are particularly beneficial for individuals who are disciplined with their finances and seek a streamlined approach to managing their debt and income. Consulting a financial advisor before proceeding is advisable to ensure that this mortgage type aligns with your financial goals and capabilities.

In summary, if you can budget effectively and manage your spending, a current account mortgage can offer substantial savings and a faster repayment process compared to traditional mortgage options.