Advantages Reduce interest paid by thousands and pay mortgage off years earlier
Disadvantages You could lose control of your finances
For anyone on the site who is getting to know me they will know that there are some things I love (chocolate) and some things I hate (paying interest). As mentioned on a previous opinion, I am a shopaholic and absolutely love spending money. The thing I am dead against is using credit where I have to pay interest - this to me is like setting fire to my well earned cash.I, therefore, do not take out loans - if I can't afford it I will not buy it!! and I do not pay interest on my credit cards - I pay the balance off on a monthly basis. The only thing that remains and is a thorn in my side is my mortgage.
Unfortunately, I could not afford to buy my house outright so I had little option but to take on a mortgage and pay interest (and it hurts).We moved to a larger house last July and really pushed the boat out with the mortgage - stretching us to above our maximum. Normally I would not have entertained this but the house was too good an opportunity to miss and we knew that we would not have to move again. So there we were back to a 25 year mortgage hanging round our necks.
I decided to take it out on the variable rate initially so that I could investigate everything that was on the market. I have now come up with this little gem - the Clydesdale Bank Rapid Repay.This little beauty seemed to be perfect and after reading all about it I set about getting quotes from my local branch. I could hardly believe the quotation I received and actually queried it with them to ensure no mistakes had been made. I was assured that it was correct. In effect I could save over £20,000 on the overall interest and reduce my mortgage term by almost half. Yippee, I could have my mortgage paid off in about 13 years.
It sounds absolutely crazy but when you start to look at the mechanics of the mortgage it actually makes sense. It is basically set up as a current account with an overdraft limit. Into this account goes your actual current account, including switch cards, standing orders and direct debits. The mortgage itself, any personal loans and savings also go into it. So, in effect everything is working out of the same account. You are charged an interest rate of 5.24% currently (which is variable) on your debit balance and only receive credit interest if your overall account happens to be in credit (perhaps one day). You are, therefore receiving no interest on your savings (thus avoiding the tax element) but the savings element is going to reduce your mortgage balance and thus the interest payable.As the interest is calculated on a daily basis, you are immediately benefitting when payments go into the account. You have to be extremely financially aware to operate this type of account and I would definitely not recommend it to anyone who does not have a good handle on their finances.
The secret to this account, as well as having your savings in there is to leave your salary there for as long as possible - arrange for your bills to come off as late as possible after your salary goes in and buy other items using credit cards rather than switch so the funds will stay there for an extra month.
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