What is a current account mortgage?

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Current account mortgages are a niche but genuinely useful product for financially disciplined borrowers who want to maximise the interest-saving benefit of their savings and income. **How it works** Rather than having a separate mortgage, savings account, and current account, all of your finances sit within a single combined account. Your salary is paid in, your everyday spending comes out, and any surplus balance at any point in time directly reduces the amount of mortgage debt you are effectively paying interest on -- since interest is calculated on the net balance across the combined account, not just the mortgage in isolation. **How it differs from a standard offset mortgage** A conventional offset mortgage keeps your mortgage and a separate linked savings account distinct, but calculates mortgage interest on the mortgage balance minus the savings balance. A current account mortgage merges everything -- current account, savings, and mortgage -- into one combined balance, meaning even your salary sitting in the account between paydays is working to reduce your effective mortgage interest, not just money you have deliberately set aside as savings. **Benefits of a current account mortgage** Because your whole balance (including day-to-day spending money before you use it) offsets against the mortgage, this structure can reduce mortgage interest slightly more than a standard offset arrangement for borrowers who keep meaningful average balances in their account -- it also simplifies banking into a single combined statement and balance. **Drawbacks and who it suits** Current account mortgages are less widely available than standard offset mortgages, since fewer lenders offer the product, and they suit people with disciplined finances and reasonably high average balances -- if you tend to run your account close to empty most of the time, the offsetting benefit is limited, and you may be better served by a standard mortgage with a competitive rate instead. **Interest rates on current account mortgages** Because of the flexibility offered, interest rates on current account mortgages have sometimes been slightly higher than equivalent standard mortgages, so the interest saved through offsetting needs to outweigh any rate premium for the product to be worthwhile overall. **Worked example** Someone with a £200,000 mortgage keeps an average combined balance of £15,000 across their salary, savings, and spending money within a current account mortgage. Interest is calculated on the net £185,000, reducing their overall interest cost compared with a standard mortgage at the same headline rate. **Practical tip** Use the Offset Mortgage calculator to estimate how much interest you could save based on your typical account balances, and compare this saving against any rate premium the current account mortgage product carries versus a standard mortgage.

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More answers

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