With a current account mortgage, your mortgage, current account, savings account, personal loans and credit cards are all combined in one account, and charged at the lender’s mortgage interest rate.
Your personal loan and credit card debt are effectively treated as part of your mortgage and charged at the mortgage rate. This is usually substantially lower than the interest rates charged on personal loans and credit cards.
Every time you put money into your account the amount of mortgage you are paying interest on reduces immediately and since your interest is calculated daily you pay less interest. You can have your monthly salary paid into the account for maximum convenience (some lenders will insist on this).
Say, for example, that you were paid £1,500 a month, and that your mortgage payment was £500. If, in a given month, you only spent £600 of your disposable income, the £400 you had not spent would automatically be treated like an overpayment on your mortgage, and the amount of interest charged would reduce immediately.
Essentially a CAM is like a big overdraft facility, charged at an extremely attractive rate of interest. CAMs represent the most efficient use of all your finances, with no effort on your part – everything is done automatically.