Current Account Mortgages

Everything you need to know about a current account mortgage and how to get the best rate

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Pete Mugleston Nathan Porter

Author: Pete Mugleston - Mortgage Advisor, MD

Reviewed By: Nathan Porter - Independent Mortgage Advisor

Updated: November 17, 2023
August 18, 2022

Current account mortgages can be the quickest and most affordable way to pay off your home loan, if you’re financially disciplined. But they aren’t always the right choice for everyone.

In this article, we’ll explain what a current account mortgage is, who is eligible and why it’s important to seek advice from a specialist broker before committing to one.

What is a current account mortgage?

It’s a type of offset mortgage that combines your current account and mortgage balance into one. The cash in your current account serves as an overpayment fund on your mortgage every month while still allowing you free access to it.

Typically, they suit high earners who earn significantly more each month than they spend or those who experience vast differences in monthly income and keep large sums of money in their current account for liquidity.

Some providers will allow you to link credit card or loan balances to your mortgage as well.

How do they work?

As an example, if your mortgage balance is £200,000 and you have £5,000 in your current account, your balance would show as overdrawn by £195,000. But your mortgage interest would only be calculated on £195,000. As most current account balances go up and down throughout the month, interest is calculated daily.

You still need to meet monthly contractual payments set out in your loan agreement but, as you are overpaying each month, the length of your loan and overall cost of borrowing is reduced.

Typically, your overpayment fund is at its highest when you get paid and then gradually diminishes as you use the account. If you don’t already hold your current account with the mortgage provider, you will have to open one as part of the application process.

You can use our calculator below to see how this could work out for you, based on your own specific circumstances.

calculator icon

Current Account Mortgage Calculator

This calculator shows you how your mortgage payments could look if you choose a current account mortgage and how much you could potentially save with this product type.

The total amount you're borrowing
Enter the mortgage rate, 5.5% is a typical rate currently but this can vary
Enter the mortgage term, 25 years is the average but lenders can offer shorter and longer terms
Enter an amount in pound sterling
Savings amount must be less than the loan amount

Without current account savings:

Monthly repayments:

Total cost:

With current account savings:

Monthly repayments:

Total cost:

Now that you have a rough idea of how much you could save on interest, you should speak to a specialist broker for bespoke advice about current account mortgages and access to the best deals that you qualify for.

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What are the benefits?

There are several benefits to this type of loan. The most obvious is that you can become mortgage free more quickly. Subsequently, your mortgage is cheaper in the long run than an equivalent loan on standard repayment terms.

If you generally have large sums of money in a standard current account, you will be paying tax on interest earned. With a current account mortgage, it will show a negative balance so you will reduce your tax bill.

If you are a regular saver, you can increase your current account balance over time to reap even more rewards from it.

In addition, you retain flexibility and can access your cash whenever you want to. With a standard mortgage, if you make overpayments, you will need to apply for a new loan or remortgage if you later decide that you need that money back. This will mean paying more interest, having the hassle of completing an application and waiting for funds to arrive.

How a broker can help you secure the best current account mortgage

Not many high street lenders offer current account mortgages and, as a result, there is less competition. This means interest rates are higher than you might expect and you will usually have to approach a specialist lender – particularly if you want to take advantage of the best offers available.

Your best route to securing the most favourable deal is to speak to a broker with experience in this specific area of lending and solid working relationships with specialist lenders.

If you get in touch we’ll arrange for a specialist broker we work with to contact you directly for a free, no obligation chat.

Eligibility criteria

Eligibility criteria for this type of home loan is often quite strict, but the size and source of your monthly income will be the major factor.

Income: You will need to demonstrate a healthy income that more than covers your outgoings each month. You may also need to commit to keeping a minimum amount in the account. This can be a little as £100 with some lenders, although that would mean paying higher interest rates without really getting the benefits.

Deposit: To begin with, you will need a deposit of at least 20% and in some cases as much as 40%. With a deposit of this size, it’s definitely worth exploring other options as you could qualify for the best rates with many big-name lenders.

Credit file: Most lenders will insist you have a clean credit file, especially if they are going to offer you their best rates. Some bad credit might not be too much of a problem but you will most likely have to offer a satisfactory explanation.

Age: Older borrowers are less likely to be accepted as providers will be concerned that their monthly income will drop after retirement.

Property type: Even fewer lenders offer current account mortgages for non-standard constructions (ie anything that is not brick and mortar).

Which lenders offer them?

A handful of high street lenders offer them including:

  • Natwest
  • Barclays
  • RBS
  • HSBC
  • Woolwich Building Society
  • Post Office

There are also several specialist lenders that are not household names and usually only take applications via a broker.

Even when considering a current account mortgage with a mainstream provider, you’re advised to speak to a broker with whole of market access rather than approach the lender directly. The lenders’ brokers are only able to advise on their own products so won’t be able to offer a comparison.

Rates typically start at around 1.54% on a 2-year fixed rate for borrowers with a 40% deposit who match all other eligibility requirements. With a 25% deposit, the best rate is around 1.83%. As always, the rate offered depends on how closely you match the providers’ risk profile.

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What is a mortgage reserve account?

Mortgage reserve accounts are rarer than current account mortgages and effectively work as a secured overdraft that allows you to borrow against the equity in your property.

The lender will secure a charge over your property and approve an amount of money as your reserve. This reserve is not paid to you in a lump sum but is available for you to dip into as and when you need it as you would with a standard overdraft.

This suits people buying a property and carrying out a major renovation. They have peace of mind knowing the funds are ready to withdraw as the project develops, but only pay interest on the amount they have drawn down. Loans will usually be interest-only and interest is calculated daily according to the balance.

Get matched with an expert current account mortgage advisor

A well-managed current account mortgage has the potential to save you a considerable sum of money over the term of your loan. But if it’s not the right product for you, you can end up overpaying for your home.

A broker will discuss the advantages and disadvantages of current account mortgages according to your personal circumstances and compare the deals available with every alternative on the market to ensure you get the one that is right for you.

Our broker matching service will connect you with a broker who has experience in this specialist area of ending and a track record of securing the best deals on offer for people in your situation.

Call today on 0808 189 2301 or enquire online to arrange a free, no-obligation chat.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

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Pete Mugleston

Mortgage Advisor, MD

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