UK Current Account Mortgages - Mortgage Advice

What are Current account mortgages?

A personal organizer, an all-in-one conditioner/shampoo bottle and the Swiss army penknife all have something in common. They all attest to the popularity of combining more than one function in one piece of equipment. Almost every industry has this, and the mortgage industry has its own combination product, the current account mortgage.

The current account mortgage (CAM) combines your mortgage, your current account, your savings account and even your personal loans and credit cards into one account. Your salary is paid into this account, something insisted upon by some lenders, and should you not spend all your income at the end of the month, that amount is taken off what you owe on your mortgage.

So, should you be paid £2000 after tax each month, then spend £1500 in the month, you have £500 in your account which comes off your mortgage. Since interest is calculated on a daily basis, the interest you pay is immediately reduced.

The CAM allows you to make overpayments and underpayments and borrow back money, so can be defined as fully flexible. You may get a debit card and a chequebook to help you withdraw money easily, up to a set limit, which is essentially the maximum loan-to-value of your property. Used properly, the CAM allows you to save money as with interest charged daily, every pound paid into the account makes a large difference to the total cost of the loan. Thus, you can pay off your loan early, which many people see as a massive advantage.

However, the CAM is not for everyone. It's a giant overdraft, making your mortgage a debt no different to other debts. Because all your other accounts are rolled into your mortgage, you are going to be in debt for a long time. Think about it this way, when you open your first bank account statement and see that you are £150,000 the worse, are you likely to faint? If you are, then the CAM may not be perfect for you.

Perhaps you may want to consider an offset mortgage, where your mortgage, current account and savings account are kept as separate products yet interact with each other. What you have in credit offsets your debt, so should you have a mortgage of £100,000 and have £20,000 in your savings account you will only be charged interest on £80,000.

CAM providers have tinkered with their products to try to blur the line between the CAM and the offset mortgage, so for instance Virgin One have redesigned their CAM so you can view the individual elements of your account separately in addition to your bigger mortgage picture. But still, the concept is the same, combine your finances to make them more efficient and save money.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2009

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