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All-In-One Mortgages

By: James Miller

An increasing number of lenders offer all-in-one mortgages that combine a flexible loan with a current account and, in some cases, savings accounts and a credit card as well. In its simplest form, called a ‘current account mortgage’ (CAM), you pay your salary direct into the mortgage account where it immediately reduces your mortgage balance. You then draw against the account for your normal spending as you would with an ordinary current account. The mortgage balance and interest on it is calculated daily, so even money left in the account for only a short period of time has some impact on the cost of your mortgage. In the more sophisticated versions (called ‘offset mortgages’), you have several accounts - one each for the mortgage, your current account, savings account and so on - running alongside each other. Each day the net balance for all the accounts is calculated and interest worked out on the overall total.

On the face of it, all-in-one mortgages are very efficient. Any positive balance in you current or savings account reduces your mortgage balance and so saves you interest. In effect then, you current account balance and savings are earning the morning rate of interest. Not only is that typically higher than the rates available on savings, but you are not charged any tax on the interest saved.

In effect, an offset mortgage puts you in a position where you are devoting the bulk of your savings to reducing your mortgage. This can save thousands of pounds off the cost of your mortgage and could mean you pay off the loan early. You still have the flexibility to divert your savings instead to other uses, in which case you give up some of the mortgage cost savings.

Of course, you don’t need an offset mortgage to pay off your loan early. You could have an ordinary mortgage and a completely separate savings account. From time to time, you could use your savings to pay off a chunk of your mortgage. That too would save you thousands of pounds in mortgage costs and could mean paying off the loan early. But, unlike the all-in-one mortgage, your savings would not earn the mortgage rate of interest, you would have to pay tax on the savings interest and, having paid off part of the mortgage, it would be more difficult to change your mind and use your savings for some other purpose after all (because you would need to take out a new mortgage to ‘get back’ your savings).

The drawback of all-in-one mortgages is that the mortgage rate of interest is often higher than deals you could get elsewhere and, in particular, there are often no special deals, such as a low discounted rate for the first few years. If you have only a low balance in your current account and little in savings, the benefits you get from combining the accounts may be too small to outweigh the extra cost of the mortgage. And combining your finances in this way could be confusing, especially in the case of a CAM where you have just a single account for both your mortgage and current account. You need to be the sort of person who can efficiently keep track of their money.

If you are good with your finances, generally have a high current account balance, have reasonably high savings and you are a taxpayer (particularly a higher rate taxpayer), an all-in-one mortgage could be a good choice. But check the mortgage is reasonably priced and has all the features you want.

Article Source: http://www.articlesinsight.com

More information : www.apply-for-mortgage.co.uk www.mortgage-calculator-for.co.uk www.mortgage-rate-for-uk.co.uk James Miller is a freelance writer specialised in consumer credit, covering topics such as how to deal with bad credit, mortgages and insurance. He aims to help people navigate the financial industry.

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