Current Account / Combined Mortgages
This is a relatively new type of mortgage product which goes further than the usual flexible mortgage.
Your mortgage account effectively becomes your bank account. You get a chequebook, direct debit facility, credit & cash card and regular statements etc. Your earnings are paid straight into this “mortgage/bank account”.
This means that effectively you pay less interest on your mortgage – because your earnings are being used to “pay back” the loan.
(See our Mortgage calculator – Difference Between Paying Interest Daily versus Paying It Yearly).
Because the interest is calculated daily any changes in your balance, no matter how short the period, will change your interest payments.
You also avoid paying the tax, which you would have been liable for if you were putting your earnings into an interest /bank account because, technically, you are not earning interest.
You are unlikely to be charged for arranging the mortgage, or for any redemption penalties or compulsory insurance.
There is a definite financial advantage to this idea, in theory saving you thousands over the mortgage term.
The general criticism of Combined Mortgage and current accounts is that they don’t give you a natural “speed limit” to your spending (i.e. you never seem to run out of money).
Most of us aren’t great money managers. And the problem is if you mess up with this type of account you really mess up big time.
It’s perhaps too easy to borrow too much from the account – for a holiday etc. – and before you know it your debt could have doubled.
Are you disciplined enough to be able to look carefully at what’s happening with your account and to keep up regular repayments?
You could easily be lulled into a false sense of security and overspend bit by bit till your debt is so big you’ve had it.
If you’re interested in this type of mortgage, there are now various ones on offer. The best way to find one is to get a mortgage adviser to help you. We can put you in contact with a qualified mortgage adviser here