Get Ahead of your Finances

Use our UK Finance guide and learn by experience. We outline pitfalls so that you don't have to learn the hard way, as many of us often do.

Mortgage

Current account mortgages (CAMs) & offset mortgages

Current account and offset mortgages link with your other finances to save you money

Are you struggling to find a decent rate of interest on the money you've worked so hard for? By linking your fiances, Current account and offset mortgages you could save thousands in interest and repay your mortgage years earlier and enjoy the flexibility to overpay, underpay or take repayment holidays.

Offset mortgage

With an offset mortgage, all your finances are linked, so your current account, mortgage and savings are held with the same lender. This can include credit cards and personal loans.

What this means is that any accounts in credit are offset against the debit ones, for example your mortgage. So instead of being paid interest on your savings and current account, you don't pay interest on the equivalent amount of your mortgage debt. If, for example, you have a mortgage of £100,000, by having £1000 in your current account and £7000 of savings and offsetting these against your mortgage, you only pay interest on the remaining £92,000.

Daily interest adjustment: As with standard flexibles, your interest is adjusted daily so your current account and savings are effectively helping to reduce your mortgage every day. Ultimately, you pay less interest because the interest on your mortgage is reduced, which in turn shortens your mortgage term or reduces your monthly payments. Tax advantages: One perk is that you can make substantial tax savings. As you don't receive any interest on your savings, you don't have to pay tax on them. This is likely to appeal to higher rate taxpayers in particular.

Capital repayments: As long as you cover the interest due on the mortgage each month, you should have the flexibility to repay the mortgage however you want.

Current account mortgages (CAMs)

Current account mortgages work in a similar way to offset mortgages but rather than having separate current and savings accounts and mortgage debt, they are amalgamated into one account. Rather than paying off the debt by making monthly repayments, any money paid into the account reduces the amount you owe – lenders normally stipulate that you pay your salary into the account. Again, this lowers the interest on the mortgage, which could mean paying it off early and saving thousands in interest.

All-in-one finances: An important aspect you need to get used to is that th~ balance of your account will always look as though it's thousands of pounds overdrawn. But your lender will be able to show you how your finances break down to bring it all into perspective and show how the mortgage debt is actually reducing.

For example, your mortgage might make your account look as if it's £75,000 overdrawn. If you also have £5000 in personal loans, this then increases to £80,000. However, add on savings of £5000 and £1000 in your current account and your balance overall becomes £74,000 overdrawn. Cheaper borrowing: The biggest advantage of a CAM lies in borrowing. Unlike some offsets, a CAM allows all you’re borrowing to be conducted at one single mortgage interest rate, which will be far lower than personal loan and credit card rates and overdraft charges. This means you can effectively borrow as much as 99% of your property's value - although this amount varies - at any time. However, borrowing tens of thousands of pounds against your house could lead to serious problems if you usually struggle to repay debts.

What you need to know

  • Offset mortgages link your mortgage to your current account and savings, which reduce the debt you pay interest on
  • Current account mortgages (CAMs) work in a similar way but all your finances are combined into one account
  • They have flexible features, such as the ability to over and underpay
  • As you don't actually receive any interest on your savings you don't pay tax on them
  • They're suitable for people who are good at controlling their finances

 

Browse our UK mortgage guide

For most of us, buying a property will be one of the biggest decisions and purchases in our lives. Choosing the right mortgage deserves serious attention and planning.

With the collaboration of financial advisors we have put together a comprehensive guide to mortgaging in the UK. This guide will help you to find the right mortgage for you and put you on the right path to understanding what type of mortgage you will need.

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