These works on a similar principle to an offset mortgage. The difference is that all the balances – mortgages and savings are combined into one account. Basically the idea is that as money enters into your current account it reduces your mortgage and therefore you will be asked for less mortgage payments. It is deemed to be tax efficient because you will not pay tax on your savings. They are automatically used to finance your mortgage.
Current account / offset mortgages are becoming very popular. It is estimated that by 2005 they have captured 25% of the market
Advantages of Current Account Mortgages
- Similar to offset mortgages they can enable tax savings and also service debt at a lower rate of interest.
- They can enable you to pay off a mortgage earlier if you have a lot of savings.
Disadvantages of Current Account Mortgages
- One disadvantage of a current account mortgage as opposed to an offset mortgage is that it can be intimidating to have a current account which is £1000s of overdrawn. An offset mortgage allows you to at least have separation between mortgage and savings.
- These types of mortgages can be a bit more complicated so it is important to have good guidance.
- You need to be disciplined to make the monthly payments, overwise you will struggle to pay off the debt.