A current account mortgage, also known as an offset mortgage, is a new way to make payments and save some money on your home loan. This mortgage is linked to a current account and offers more flexibility than your typical mortgage loan. You may also save quite a bit on interest payments, allowing you to pay off your mortgage more quickly.
This article will provide basic information about current account mortgages to help you decide whether this is the best mortgage option for you.
How a Current Account Mortgage Works
In the simplest sense, a current account mortgage allows you to offset the balance in your savings account against your mortgage, which reduces your interest payments.
For example, let’s say you have a £200,000 mortgage and £30,000 in your savings account. With an offset mortgage, you only pay interest on £170,000. This allows the borrower to pay off the mortgage sooner and save on the amount of interest paid during the life of the loan.
Who is a Current Account Mortgage Ideal For?
A current account mortgage may be a good choice for someone who has an outstanding balance on a mortgage payment and a significant amount built up in a savings account. Because the account is flexible enough to allow overpayments and underpayments, it is an optimal situation for someone who gets regular bonuses or is self employed without a steady income. The account holder can make large payments when a paycheck comes in and skip payments in months where there is less income.
Benefits of a Current Account Mortgage
There are a number of reasons to consider a current account mortgage, including:
* Less interest paid over the life of the loan
* Mortgage may be paid off sooner
* Overpayments and underpayments can be made without penalty
* Those who don’t have a consistent paycheck can make payments at convenient times
If you are serious about paying off your mortgage under your own terms, a current account mortgage might be an option to consider.
Drawbacks of a Current Account Mortgage
While current account mortgages work well for some individuals, they are not right for everyone. Some of the drawbacks of current account mortgages include:
* Many of these accounts charge a higher rate of interest than conventional mortgage loans
* The higher interest may not be offset sufficiently by the savings if there is not ample money in the savings account balance
* Many current account mortgages include variable rates of interest, which can make it difficult to budget accurately
* Because the rates tend to be higher, account holders may need to shop around and switch accounts regularly to get the best interest rate
When you find a current account mortgage that looks enticing, it is important to read the terms of the loan carefully to know exactly what you are getting. Ask how often the rate may change or if there are will be fees assessed.
You will also want to accurately calculate the amount of interest you would save against the increased interest rate that you would take on with a current account mortgage. This ensures the current account mortgage you choose would be the most financially beneficial to you.
