Why there should be a separate credit card with a current account mortgage

Payment cards, often referred to as “credit cards” are often sod in conjunction with current account mortgages.  They are not in fact credit cards and although they have some advantages there are some things that a credit card user should watch out for.

Current Account mortgages, which are also called flexible home loans, are home loans which are integrated with a current account. The current account will then show a high and constant overdraft and will do so until the home loan is paid off.

Flexible home loans work by having all the funds combined into the same account as the mortgage with the aim of putting together credit cards, savings and personal loans.  A credit card interest will reduce considerably as it is charged at the mortgage rate rather than the credit card rate.  The “credit card” is in fact a debit card used against the account.

Flexible mortgages do have advantages.  They can lower the interest rate on otherwise unsecured debts and can raise the after tax interest rate on savings.  However there are some issues.

A flexible home loan will have a higher interest rate than a standard home loan due to the higher administrative overhead.

Flexible home loans need a lot of discipline, particularly if there is a payment card attached to the account.  It is easy to spend on these accounts and there is no check as there is with a credit limit on a credit card.  It is possible that a lender will review and gradually reduce an upper credit limit towards the end of the mortgage term (or retirement) but this does not happen on all loans.

The need for discipline means that flexible mortgages will suit some borrowers, but many others may still need some segregation.  This is where a second credit card comes in.  The credit card will be able to segregate the spending that is done on the card away from the spending that is done on the mortgage.  In this way the spending creep that many borrowers report with flexible home loans can be avoided or at least monitored.
Another advantage of getting a credit card with a flexible mortgage is the use of introductory offers on balance transfers and spending.  Many of these introductory offers will be lower than the mortgage interest rate; some will be at zero per cent.  This can significantly cut the amount charged on the mortgage than if the mortgage was used on its own.