What is a Cheque Book Mortgage?

A cheque book mortgage, also known as a current account mortgage (CAM), allows you to manage your mortgage, current account, savings account, credit cards and personal loans in one account. Your salary is paid directly into the account, and any income left over at the end of the month is automatically taken off the mortgage account. For example: a monthly salary is ?2,000 and the outgoings are ?1,500. This leaves ?500 in the account. The ?500 will then be used to reduce the mortgage. As interest is calculated on a daily basis, the interest payments will be reduced straightaway.

Borrowers are provided with a cheque book to draw on the account, and some lenders provide a debit card, and a type of credit card. A cheque book mortgage is also a form of flexible mortgage, which means you have some financial freedom and control, by making overpayments, underpayments, and borrowing back on overpayments.

Overpayments, Underpayments and More

Cheque book mortgages are suitable for many people, for example: individuals who want to make repeated overpayments because they receive regular lump sums through commission or bonuses; the self-employed with a variable income who can utilise the overpayments and underpayment option.

Overpayment ? i.e. repaying more of the loan than your agreed monthly premium ? gives you the ability to pay off your mortgage early and save on interest charges. You can make overpayments on a regular basis, or as one-off lump sums. As the interest is normally calculated on a daily basis, the money is deducted from the debt straightaway.

Underpayment ? i.e. repaying less of the loan than the agreed monthly premium ? is normally permitted after a set amount of overpayments have been made. The underpayment option gives you some respite should finances become stretched. You can then choose to underpay for a few months until your finances have been sorted out.

Payment holidays ? i.e. having a total break from paying your monthly premium ? in some cases up to a year. This option is great for borrowers who want to have a career break.

Withdraw overpaid money directly ? some lenders allow you to use a cheque book or debit card to borrow back on overpayments, while other lenders let you borrow money as the value of the property increases.

Different Lenders

Different lenders manage cheque book mortgages in different ways, for example: some lenders provide borrowers with a single statement, so that every month they appear to be overdrawn; some lenders provide separate statements on your debts and savings.

The Downside with Cheque Book Mortgages

One of the problems with a cheque book mortgage is the temptation to spend too much money. With all your money in one place, it is hard to see whether or not you are on track to pay your mortgage back. If you aren't disciplined with money and do not budget your finances, then this type of mortgage might not be suitable for you.

Getting Advice

Taking out any type of mortgage is a big step. To ensure you do not saddle yourself with the wrong type of mortgage with options that wouldn't suit you, it is advisable to seek advice from an independent mortgage advisor.

Conclusion

A cheque book mortgage lets your money work for you, enabling you to pay your mortgage off early, and offers you different payment options to give you the flexibility you and your lifestyle need.