Current Account Mortgages  An Introduction

Current Account Mortgages

Conceptually, the idea of a current account mortgage (CAM) is very simple. A CAM combines current account...

Get a Free Quote Introduction to Current Account Mortgages

Current account mortgages were first developed in Australia and introduced to the British market in 1997 by Britannic Money with its Current Account Mortgage and Virgin Money and the Royal Bank of Scotland with a joint venture that created The One Account.

Conceptually, the idea of a current account mortgage (CAM) is very simple. A CAM combines current account, mortgage, savings account and personal loans into a single account.

Any surplus cash in the account goes towards reducing the outstanding mortgage balance and hence the amount of interest charged on the mortgage, which is calculated daily.

Most CAMs offer the option of underpaying or overpaying on a monthly basis according to circumstances, so long as a maximum agreed borrowing limit is not breached. In effect, a CAM operates like an ordinary bank account, but the mortgage provider will normally insist that the borrower's salary is paid directly into the account.

In many ways, having a CAM is like having a very large overdraft. Whenever cash is paid into the account, the size of the overdraft is reduced, as well as the amount of interest owing. As the borrower continues to repay interest over time, the length of the mortgage term will diminish as the mortgage debt is reduced.

Current Account Mortgages Vs Offset Mortgages
Current account mortgages (CAM) and offset mortgages follow a similar basic model, offering similar rates of interest. The main difference between them is that with a CAM everything is held in a single account, while with an offset mortgage the savings and debt elements are held in separate (but linked) accounts.

For many borrowers, little difference exists between the two options, other than that possible sinking feeling you might get from a CAM when you see the size of your overdraft on your visits to the cash machine. Conversely, some people actually prefer to be reminded regularly about the size of their debt, to encourage them to pay it off as quickly as possible.

With a CAM, all accounts including personal loans, credit cards and savings accounts are rolled into one, whereas with an offset mortgage it is only the current account and the mortgage account that are normally linked, with borrowers able to take out additional savings accounts or personal loans, which may offer greater flexibility for some borrowers.

Summary
Bullet Point Simply put, a current account mortgage or CAM, is an account that rolls all other accounts into one bundle;
Bullet Point by doing this, the borrower simply has one figure which shows the mortgage, current account balance and any savings, which can be easier to understand than multiple separate figures;
Bullet Point there is also an interest advantage as the amount of interest payable is calculated on the total, on a daily basis; this means that provided your current account is positive, it should be less than for the full value of the mortgage.

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