Compare Current Account Mortgages
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About Current Account Mortgages
A current account mortgage merges your mortgage with your current account. Unfortunately, you can’t get them at the moment, but here’s how they used to work, and a few alternative options.
Think carefully about securing debt against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
What are current account mortgages?
Current account mortgages combine your current account and mortgage so that your savings can be used to reduce the amount of mortgage interest you’re charged.
The amount in your current account is offset against your mortgage debt, leaving you with one figure.
So if you had £2,000 in your current account and a mortgage of £120,000, what you owed on your mortgage would have shown as £118,000. The interest you paid on your mortgage debt was calculated on the lower amount of £118,000 while you had £2,000 in your account.
The money in your linked current account was essentially an overpayment, meaning you usually had the option to pay off your mortgage sooner, or pay less each month.
How did a current account mortgage work?
Similar to other types of mortgage, you made monthly payments to your lender and paid a fixed or variable rate of interest.
The interest you paid on your current account mortgage was usually calculated daily. As the balance of a current account tends to go up and down throughout the month, so did the amount of interest you paid.
Can you get a current account mortgage?
You can't get a current account mortgage at the moment. However, when thinking of who this product might have suited, this type of mortgage benefited people with larger incomes whose income covered their costs. So if you spent less than you earned, and consistently had a decent amount in your current account despite your regular outgoings, it might have been an option.
As with any type of mortgage, lenders would have eligibility requirements to meet, including age restrictions. They would have looked at your income, your credit score, the loan-to-value (LTV) ratio, and whether you could afford the repayments, among other factors.
With offset mortgages, which are still available linked to savings accounts, you generally need to have a deposit or LTV of at least 25% and borrow a minimum amount.
What are the benefits of using a current account mortgage?
When available, the main benefits of a current account mortgage are:
- It lets you reduce the amount of interest you pay on your mortgage by offsetting money in your linked account.
- As you are effectively overpaying your mortgage, you could pay off your mortgage sooner, or choose to lower your monthly payments.
- Money in your account can be accessed with ease and without charge if you need it later, which isn’t the case with overpayments on a mortgage, though the less money in your current account, the more mortgage interest you will be charged.
- Your linked current account won’t earn interest, so there will be no tax to pay on interest on your savings.
What are the disadvantages of current account mortgages?
If lenders decide to re-introduce current account mortgages, as with any mortgage product, you would need to have a clear plan in place for how you would meet your repayments. Also consider that:
- Interest rates for current account mortgages, and offset mortgages in general, can be higher than standard mortgages.
- Even when it’s available, this type of offset mortgage isn’t common among lenders so you would have less choice of providers.
- You would need to be comfortable seeing your account balance as negative, essentially in overdraft.
- You wouldn’t earn interest on your current account savings.
What alternatives are there to a current account mortgage?
As current account mortgages are not currently available, other types of mortgages with special features, or alternative options to pay off your mortgage quicker, include:
Savings account offset mortgages
An offset mortgage uses a savings account to reduce the amount of interest you are charged by offsetting the savings against your mortgage debt. The mortgage balance and savings account balance are kept separate – they are just linked when it comes to calculating interest on your mortgage debt.
» COMPARE: Offset mortgages
With a cashback mortgage, when you buy a property or remortgage, the lender pays you a lump sum, which you can use however you like. This extra cash might come in handy, but make sure you’re not paying a higher rate of interest when compared with standard mortgage deals.
» COMPARE: Cashback mortgages
Overpayments on standard mortgage
Most mortgages allow overpayments. These are flexible, one-off or regular payments on top of your agreed monthly payments. Overpaying can reduce the time it takes to pay off your mortgage and mean you pay less total interest on your mortgage.
Check for any penalties for exceeding a maximum overpayment amount set by your lender. Most allow you to overpay up to 10% of the total amount you owe each year, but you’ll want to be clear on the terms of your agreement.
If you’re not sure which mortgage is best for you, consider getting guidance from a mortgage adviser.
» COMPARE: Mortgage deals
100% LTV Mortgages FAQs
What are current account mortgages?
When available, a current account mortgage merges your mortgage with your current account. Your balance will total the amount you owe, minus the amount that is already in your current account.
How is a current account mortgage an offset mortgage?
Offset mortgages relate to any mortgage where you have some amount of money in savings or in a current account, which you use, or ‘offset’, against the total sum you owe on your mortgage. The difference with a current account mortgage is that the two accounts would be combined into one balance.
Does it matter how quickly I repay a current account mortgage?
Lenders charge interest on mortgages. The longer you are paying off your mortgage, the more interest you will expect to pay over time. So if you want to keep costs low, paying off your mortgage sooner is an option worth considering.
What happens when I withdraw money from my current account?
If you withdraw money from your current account, the interest you would pay on your mortgage would be higher because the lender is calculating interest on a higher amount.
However, one of the benefits of a current account mortgage would be that you still have access to money in your account if you need it. Just bear in mind that as your balance fluctuates, so would the amount of interest you are charged.
How can a broker help with a current account mortgage?
Although current account mortgages are not an option at the moment, brokers can help you to get a clear understanding of the mortgages available to you. They can also make finding specialist products easier.
Some brokers are affiliated to certain lenders, while others are independent and offer products from across the market.
What information do I need if I apply for a current account mortgage?
If current account mortgages become available again, lenders will want to see documents that verify your identity and show your financial history, to help them decide on your creditworthiness and the affordability of the loan.
This may include payslips, a valid passport or driving licence, along with recent bank statements, tax returns and utility bills.
Is a current account mortgage suitable for those on low wages?
How much you earn and how much you spend is an important factor with a current account mortgage. The provider will look at your income as part of its affordability checks.
Whatever your income, look at your monthly income and outgoings that are set in stone and if you can afford the mortgage repayments on top of your existing spending.
If you don’t usually have a lot of money in your current account, you may want to consider other types of mortgage.
» MORE: Choosing a mortgage
Can I save with a current account mortgage?
If available, you won’t earn interest on any money in your linked current account. You need a separate savings account or current account that isn’t linked to your mortgage to benefit from interest on your savings.
There may be a cap on how much you can pay into your account to offset, so check this with your provider.
Will current account mortgages come back?
It's unknown if these types of mortgages will come back. If they do, they may have changed in the way they are set up so it's important you research any new style products well and take advice if needed.
Holly champions clear, jargon-free writing. She’s been creating finance content for leading organisations for over 10 years. Read more
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