The first shoots of economic recovery are beginning to sprout, but the economy will not be healed quickly. We are still many years away with a rocky road ahead to navigate before the economy is healthy again.
We are going to have to be a just as careful in the future as we are being now in relation to budgets and cash flow. Going crazy with credit is what started this mess, thinking the economy has bounced and it is ok now would be the worst thing to do.
Such a microscopic look at our own personal finances might be just what the doctor ordered. Slashing costs that when we really think about; we don’t really need to be paying, which of these costs to keep or cut is the hard part of the decision.
Targeting habits, good as well as bad is the first way to make decent sized cutbacks. Alcohol cigarettes, regular trips to Starbucks will all soon see the wallet bulging again by cutting down or stopping completely. Entertainment or pampering would be next, so say goodbye to the gym and hello to the roads, the beauty salon is out as well. The only danger here is weak willpower, so make yourself 110% committed, the savings you see after a week or two should help bolster that willpower.
Interest rates should never be forgotten about and it’s hard not to at the moment. With the Bank of England’s base rate at the historic low of 0.5% (but not for much longer) it has been a boon to homeowners up and down the land with lower mortgage repayments being the result. Yet not everyone has accepted these lower payments, many people have in fact chosen to pay as much as they can monthly, but why?
Many of the brand name high street financial institutions have upped the overpayment threshold from what was the standard 10%, to 20% over the last year or so. Anything over these percentages causes penalty charges to be issued, so the lenders it seems have taken the unusual step of promoting mortgage over payments.
If raising the threshold from 10% to 20% is considered amazing, then the Co-Operatives and Britannia’s move of letting their customers pay 50% extra a month is off the scale. You don’t have Einstein’s skill at mathematics to know even repaying a small amount on extra on top of the agreed monthly repayment regularly can save thousands of pounds in interest in the long term and knock years of a mortgage. With interest due to rise literally any month now, the chances using this option is on borrowed time.
With the base rate having been level at 0.5% for coming on two years, inflation has been slowly rising in the shadows. It wasn’t a worry until recently, so pressure is now on the Bank of England to raise interest rates to tackle inflation, meaning anyone with a tracker is looking at increased mortgage payments this year. So those who can afford to make overpayments should so now while there is a chance.
Any overpayments you make, no matter what you might have read or heard, nine times out of ten they cannot be reclaimed in emergencies. There are few, and we mean a very few, that will allow overpayments to be taken out like a withdrawal, but you could probably count on one hand the lenders that do. On top of this, expect heavy charges for releasing this equity if you do need it.
Experts always urge caution, don’t drain any emergency funds or savings you have tucked away to take advantage of low interest rates. Make affordable overpayments if you can, one off payments when you have the cash can also make the difference, such as from bonuses or inheritance. You never know what’s around the corner, so don’t go to the opposite end of the spectrum of binging on credit to using all your money paying debt down with no liquidity when another financial emergency rears its ugly head.
Howard writes for Just Commercial Mortgages the UK’s No1 site for the latest commercial mortgage rates and commercial property finance news.
