Many home owners are now being offered the chance to have a debit card that is in some ways linked to their mortgage. While these give great opportunities they should be treated carefully.
There has been an increase in the general flexibility of home loans over the last few years. This is due to information technology getting cheaper, so making a more flexible mortgage economic for many lenders.
Previously mortgages were fixed in the repayments that were made, and this very flexibility was one of the reasons that the mortgage providers would charge less towards loans than towards virtually any form of consumer credit. Other reasons included the size of the loan and the fact that the loan was secured against a residential property. Today a more flexible mortgage still tends to be more expensive than a fixed mortgage, although the gap is far narrower.
There are a number of accounts where mortgage lenders will issue a debit card against a home loan, combined accounts and offset accounts. Combined accounts, or current account mortgages, are mortgages where the mortgage has the full banking facilities of a current account. This is to encourage the salary to be deposited in the account, and to consolidate savings, credit cards and loans in the same account – considerably saving on interest.
Offset accounts are where there is a savings account linked to the mortgage account. When money is deposited in the offset account then the money is set against, or offset, against the mortgage and so reduces the interest. For the home owner this means that their “interest” is far higher than it would be if it were in a savings account where it would be earning a lower rate of interest as well as being taxed. Although traditionally offset accounts are treated as savings accounts, without having easy ways of withdrawing money, there has been competitive pressure to make the money more accessible and so a number of accounts have started to give out debit cards with the offset accounts.
The debit cards, particularly those that are directly against a mortgage, give the borrower a greater borrowing facility than any credit card can as the money is secured against the house. This means that a greater degree of self-discipline is required as if the mortgage is not watched then a large amount of money will be spent without being noticed.
