Mortgage Advice

Revolving Mortgage (Current Account Mortgage)

Revolving mortgages, or current account mortgages, generally work in a similar fashion to credit cards. The lender of the mortgage agrees to a ceiling on the amount of money the borrower can have as a mortgage. The mortgage is a simple ‘repayment mortgage’, and the borrower makes their usual monthly payments. As the amount of the outstanding loan decreases over time, the borrower is free to use any available credit for any reason, at any time, and for any amount, up to the ceiling amount of the original mortgage. So, if our borrower had $100,000 as the mortgage and, after 1 year, the loan amount had reduced to $95,000, the borrower could then have up to $5,000 to do with as they wish, without having to apply to the lender again.

With a revolving mortgage, good benefits can be made by tipping extra cash, when you have it, into the account, thus reducing your interest payments. In fact, many holders of revolving mortgages normally have their salaries paid into the account, as they are able to draw out money as needed. This saves them quite a bit of money from daily interest calculations, and effectively gives them a higher rate of return on their savings.

The main drawback of a revolving mortgage though is temptation. As there is no need to constantly apply to lenders for more money, it’s all too easy to dip into the account whenever you need extra cash, but by doing so you are extending the length of your mortgage, and of course will end up paying more money in the long term. The temptation is particularly hard to resist as more of the mortgage gets paid off and there is more money available to use for other things, like holidays, new cars, etc.

Revolving mortgages do have their ideal audiences though. People who work on commissions, or whose income is extremely variable, could find a revolving mortgage quite useful. They can pay the money in when they have it, and there is usually money available to use when they don’t. Again though, good financial restraint is the key to making a revolving credit work in your interests, and not the bank’s.