The big bonus of current account mortgages

Recent research from YouGov has shown that the average bonus received this year is £1,550.95 and many people are planning to use this to pay off debt. While 18 per cent of people surveyed last year planned to use their bonus for this period, that figure has increased to 26 per cent for Christmas 2006. Some 17 per cent intend to save the money, while 2 per cent intend to overpay on their mortgage.

Those who do could save themselves thousands of pounds, so it’s surprising that more people aren’t choosing this option for their Christmas bonus, says the One Account. People with a current account mortgage could repay the mortgage six years early and save thousands of pounds in interest, simply by putting the average annual bonus into the account each year.

Current account mortgages work by having a single account for all borrowings (mortgage, loans and credit cards), like having a current account with a large overdraft. Savings are usually included as well. Any credit that is paid in immediately reduces the balance owed and the interest due, which is one reason why such accounts can be popular. Putting in a bonus is one way to make a big reduction in the amount owed and the monthly mortgage payments.

The good news is that paying in your bonus doesn’t mean saying goodbye to your money. Current account mortgages are flexible, with a borrowing limit that means you can withdraw your money when you need it, so that bonus can still be retrieved if things get tight. However, leaving it in the account could be a good long term move, because of the savings that it brings. The thought of reducing the mortgage term is an appealing one for many borrowers, so it’s surprising that more people don’t choose to use their bonus this way.