Mortgage Products
Offset / Current Account Mortgages
Offset mortgages and current account mortgages are really an automatic form of flexible mortgage. With offset mortgages, the customer has their mortgage account, savings account and current account with the one provider. Usually, different interest rates apply to the three different accounts. Interest is calculated on a daily basis and any positive balances in the current and savings accounts are offset against the negative balance in the mortgage account. This means that the amount outstanding on the mortgage loan at any point in time is kept to a minimum, thereby saving potentially thousands of pounds in interest over the life of a mortgage or repaying the loan much earlier than would otherwise be the case.
Some lenders also allow personal loans and credit cards to be included in the arrangement. This means that these loans are charged interest at the levels applicable to mortgage loans instead of the higher levels usually associated with credit from these sources. However, it does mean that short-term debt is converted into long-term debt unless the borrower maintains the repayments to the short-term loans at the same level as they would normally. These other borrowings remain unsecured and do not put the property at risk if they are not repaid.
Current account mortgages (CAMs) work in a similar way, except that only one account is used; a current account into which the borrower's salary and savings are paid and from which the mortgage loan is debited. In other words, it is a current account with a huge overdraft facility, with the interest rate charged at mortgage loan levels. Any excess of income over outgoings in a month is used to reduce the mortgage loan, as are any savings.
With both offset and current account mortgages, any of these automatic overpayments are still accessible if needed. Obviously, if overpayments are not used to reduce the mortgage loan, this would decrease the pace at which the mortgage loan could be repaid.
Some lenders allow borrowers to access funds in excess of the overpayments (called 'draw-down facilities'), which would mean that the mortgage balance would exceed the original loan. A degree of discipline is therefore needed to ensure the borrower does not get into financial difficulties with their secured loan.
Your home may be repossessed if you do not keep up repayments on your mortgage.
|
