Choosing a Current Account Mortgage
Current account mortgages are, without a doubt, a useful addition to the mortgage offerings available for borrowers. But, like any other mortgage product, it may not be the best option for everyone.
Is a Current Account Mortgage Right for Me
Many property purchasers still treat mortgages like a commodity, looking only for the cheapest available option. If this is the case, then it is unlikely that current account mortgages will even enter the equation as they generally have a higher interest rate than the cheapest options available on the high street.
Current account mortgages actually offer a large degree of flexibility and this is the key selling point for this particular type of mortgage. As a current account mortgage effectively offers you a large overdraft to purchase the property, the thought of having a current account that is perpetually substantially in the red can be quite unnerving for some people. Further, it can actually encourage greater spending as another thousand here or there may not be as noticeable as with a standard current account that is usually in the black!
Although current account mortgages offer flexibility, they can, potentially, also cause financial difficulties if the borrower is not on top of their daily spending.
The benefit of a current account mortgage is that it allows the borrower to pay the mortgage off earlier by eating away at the overdraft, on a regular basis. As the interest payment on a current account mortgage is generally higher than on a standard mortgage, it is vital that the mortgage is paid off early if the borrower is to benefit.
Consequently, a current account mortgage is only really beneficial for those who have cash left over every month to assist with paying off the mortgage. Current account mortgages are also beneficial for those who have an irregular income or for those who receive a large bonus or commission payment. This is because these overpayments can then be made against the mortgage as and when they arrive.
Another group of people that may benefit from a current account mortgage are those who have a large amount of savings. A savings account will be generating interest which will be taxable at the same rate as income is taxed. For most people with considerable savings, this tax rate would be 40 percent, making a large dent in the interest payments received.
By putting the savings into the current account to reduce the overdraft, it simply means that less interest is payable as it is calculated daily; the cash is still available in an emergency, and there will be no tax liability on the income from the savings.
Current account mortgages offer flexibility but rely on borrowers making regular overpayments to ensure that the mortgage is paid off earlier than scheduled;
some borrowers would find managing what is effectively a large overdraft daunting and it may encourage monthly overspending as it is harder to monitor regular income and outgoings;
current account mortgages are most suitable for those who receive regular bonuses or commission payments or for those who are subject to a large amount of tax on savings income.