What Is a Cash Flow Account to Pay Off a Mortgage?

When a person takes out a loan to pay for the purchase of a piece of property, such as a home or business, this loan is known as a mortgage. Generally, the person who took out the loan will be required to pay it off over a long period, usually many years. In some cases, the person may structure the loan so the lender is paid from an account that generates cash flow.

A cash flow account receives money derived through income-producing assets or organizations. For example, an account may be formed to receive money that is generated from the dividends received on various stocks or from the income generated from a business. This account can be set up to pay bills or make other kinds of regular payments, such as to mortgage lenders.

A mortgage lender will generally require that a borrower pay a set amount of money, usually at around the same time each payment period. For example, a loan may be structured so the lender is paid on the first day of each month. This money can be paid in a variety of ways, including an automatic transfer from the borrower's account to the lender's account.

A small business might use a cash flow account to pay off the mortgage on the shop in which it is located. The cash flow account may be the account into which the business deposits cash revenues collected from customers at the end of each day. This money will then be transferred regularly to the lender who issued the business its mortgage so payments are met on time.

The advantage of using a cash flow account to pay off a mortgage is that the borrower does not have to worry about remembering to make a separate payment each month. Forgetting to do so would cause the borrower to incur additional fees and may harm his credit rating. However, if the cash flow account is short during a payment period, this may cause the payment to not go through.

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