A current account mortgage is another form of a flexible mortgage. When you take out the mortgage at least one borrower must have their salary paid into a current account opened for the mortgage. This makes your mortgage, in effect, like a big overdraft.

This gives you immediate access to your mortgage account, allowing you to pay more towards it with ease which has an immediate effect on your mortgage balance. The salary that is paid into the account acts as an overpayment which will have a huge effect on interest charges in the long term.

Interest is calculated daily, so as soon as your salary is paid in the interest charges will decrease. As the salary is spent, the size of the overpayment will reduce. Any money that has not been spent at the end of the month will continue to reduce the size of the debt.

You can change your monthly spending habits to keep the most amount of money available for the longest time. One way of doing this is to buy household goods on a credit card and clear the balance at the end of every month. Another way is to pay direct debits, standing orders and bills as late as possible in the month, before the following month’s salary is paid in.

This is also a useful way of saving money that you would have put elsewhere. It makes sense to pay less on your mortgage than to pay tax on a savings account.

Careful management is required for this type of mortgage to work. You will still have a debit card and cheque book for the account, so must be disciplined in not spending your equity. You must make sure that your mortgage balance is constantly reducing for this to work. If you do find yourself borrowing from your mortgage account then this will put you behind on your payment schedule meaning you need to pay in larger monthly payments or face a longer mortgage term.

Advantages

As well as the advantages of a flexible mortgage, a current account mortgage can also offer the following advantages:

Every day that there is more money in your account than your usual monthly mortgage payment, is a bonus as you will be paying less interest.

You can save at the mortgage rate of interest, which is much more competitive than a savings account.

You do not pay income tax on interest payments when you use the account to save.

It is much cheaper to borrow money from this account than to pay high interest rates on personal loans or credit and store cards.

Disadvantages

As well as the disadvantages of a flexible account, a current account mortgage can have the following disadvantages:

To make the current account mortgage work effectively takes a lot of budgeting and discipline.

It is sometimes difficult to see past such a large debit balance on a current account all the time.

You do not have any credit balance to earn interest.

As this is a more recent type of mortgage there are not many lenders offering it, so there is not a lot of choice in the market place.

Interest rates do not look very competitive at first glance, so you need to research the mortgage and compare it to find out whether it is suitable for your circumstances.