Current Account V Tracker Mortgage

O

oddwire

Guest
Hi,

Sorry if this has been done to death but I'm finding it hard to understand the current account mortgage.

We have a tracker mortgage at the moment and are thinking of switching to a current account mortgage. I don't see the benefit in this, and think that staying with a tracker is a better option.

The way I see it, with the CAM if we have an extra €100 a month in our current account these will build up and finally reach a stage where there is a large lump sum in the account that can be used to clear off the mortgage earlier than anticipated, thereby saving lots of interest. This means that we can't spend that €100 a month and must leave it just sitting there accumulating. My other half sees it as any money sitting in the current account gains an interest rate that is used to reduce the interest rate on the mortgage, and this is how you save money in interest, but you can still withdraw the accumulating money at any time.

Sorry if this is a really stupid post but I'm finding this really difficult to understand - why not simply carry on with a tracker and any time we have some spare cash put it towards the mortgage, helping to clear it earlier?

Thanks!
 
Oddwire,

My understanding of a current account mortgage is as follows:

Say your mortgage is 200k and you have 10k in your current account you will only pay interest on 190k instead of 200k. Therefore the more money you have in your current account the less interest you pay.

The main advantage is that you have access to your cash at any time while the money in the account helps reduce your mortgage interest.

In my opinion you would need to have good amount of savings in your current account to make it worthwhile as the interest rates are usually higher than the tracker mortgage.
 
MB05, not sure whether I agree with you, I don't know of any Irish bank advertising interest rates on saving accounts that are higher than mortgage interest rates. Apart from that you have to pay tax on interest accrued on a savings account.
You pay the same amount each month on your CAM, just like a normal mortgage, however if you had money in your account that would decrease the amount of interest due for that certain period you would have "overpaid" and hence shortened the life of your mortgage. First Active has some useful calculators on their site that shows you exactly how a certain balance in your account would influence the duration of your mortgage payments.

Since I got a very competetive quote from another bank for my mortgage for the first 2 years I don't have CAM at present but will definitely consider after the 2 years are up. In short I believe it is better value than a savings account, but there are better ways of investing your savings than a CAM, as long as interest rates are this low.
 
Happy_Harry, interesting point, I have a CAM with first active and I was always under the impression that the more I save, less interest I pay. Correct me if I am wrong, but you are saying, leaving money in current account is considered as over paid and shortens the length of the mortage. I agree. But is that all? If I overpay say 10K to a 200K mortgage, I now owe 190K and I would need to pay interest on that from now on, which should be better than paying interest for 200K?!

Sorry, a bit slow here!
 
I currently topped up my CAM from First Active.

165k over 22 years - €944 per month

AIB new business tracker is quoting €929 (20 yrs) from aib.ie, €973 after yr1.

So the CAM is costing me €15 per month in the first year only but with approx 8-10k in the current account I should save €400 a year in interest.

(€10,000 x 4% = €400 interest saving!)

That is right, isn't it
 
moneypitt said:
Correct me if I am wrong, but you are saying, leaving money in current account is considered as over paid and shortens the length of the mortage. I agree. But is that all? If I overpay say 10K to a 200K mortgage, I now owe 190K and I would need to pay interest on that from now on, which should be better than paying interest for 200K?!

Sorry, a bit slow here!
Click to expand...

Yes maybe we are getting our wires crossed here. Let's not use the term overpay anymore, it might sound like actually paying extra towards your mortgage, which it isn't.If you have 10 K in your current account and you have a mortgage of 200K , you only have to pay interest over 190 K. Which on a yearly basis could work out to be 400 euro of a difference, and since 400 Euro might represent half your monthly mortgage payment after 10 years you have decreased your mortgage lenght already by at least 5 months. I hope this makes sense ( but this was the very simple version of the calculation and hence not 100 % accurate).
If you use the calculators available on their website you will find that (assuming your 200 K mortgage runs for 20 years from today) with leaving 10 K in your account you will decrease duration of your mortgage by 19 months (12K saved on interest), then again you don't get any interest over the 10 K, and 10 K will be worth about half of it after 19 years of 3+ % inflation.

Leaving 85 euros in your account every month ( and spending your 10 K now :cool: ) will decrease the mortgage term by 2 years !! And 85 euros now will feel like 50 euros or less towards the end of your mortgage)

Please note I am not a financial advisor...
badgambler said:
165k over 22 years - €944 per month

So the CAM is costing me €15 per month in the first year only but with approx 8-10k in the current account I should save €400 a year in interest.

(€10,000 x 4% = €400 interest saving!)

That is right, isn't it
Click to expand...

As per the savings calculator , at the end of your mortgage you wil have saved 12 K in interest which is 545 euros a year.But once again your money is worth a lot less by then.
 
Happy Harry

The interest rates I referred to were the mortgage interest rates not the interest rates for savings. The interest rates for current account mortgages are usually higher than tracker mortgages.

My point was that if you have little or no savings in your current account there is no point going with a current account mortgage as you would be paying a higher mortgage interest rate but if you are a good saver or have 1000's in your current account at any one time it might be worth your while.

Sorry for any confusion.
 
You must log in or register to reply here.
Back
Top