Current account mortgages (CAM)

What are current account mortgages?

With a current account mortgage, you run your finances – your mortgage, savings, loans, any other debt – all through one account.  The idea is that by having all your money in one place, all your resources pull together to reduce the mortgage debt and save you thousands of pounds in the long term. Your salary goes into the current account mortgage each month and at the end of the month any remaining money goes towards paying off the mortgage, thus reducing the size of the loan that you are paying interest on.

One of the added benefits of current account mortgages is that by moving any other outstanding loans and debts into your mortgage account you will achieve the same low interest rates as you do for your mortgage. Also, interest is calculated on a daily basis, which reduces the total amount that you have to pay.

In order to understand the way the current account mortgage works, you may wish to imagine it as a large overdraft.  You pay your salary into the account each month, thus reducing the size of the ‘overdraft’ and therefore the amount of interest owed.  Even though you will also be taking money out of the account, you will have reduced the size of the overdraft overall which means less interest owed and a reduction of the time during which you have to pay back the mortgage.

As with many flexible mortgages, you will probably find that you pay a higher interest rate for a current account mortgage but if you use the account sensibly and maximise its full potential by clearing your mortgage debt sooner than planned, then it should work out cheaper for you than paying a lower interest rate over a longer period.

Due to its nature – ie having a pool of money each month that could be spent or saved -  the current account mortgage is not for everyone. The fact that your savings are offset makes it an ideal option for those with substantial savings.  Also if you are paying a higher interest rate on your mortgage in order to achieve flexibility, then it makes sense for you to actually need that flexibility – ie because you would like to make overpayments and underpayments as you receive irregular bonuses or are self-employed etc.

If you don’t have much in the way of savings, and a lower interest rate or other features (such as a fixed rate mortgage, for eg) are more attractive to you then it might be best to avoid a current account mortgage.  It takes discipline and a bit of financial savvy in order to maximise the potential of a current account mortgage, so your personality as well as financial situation should be taken into account when weighing up whether to opt for one.

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See also:
Flexible mortgages
Types of mortgages available