Rate Cuts Left you Better Off? 4 Things to do with Your Mortgage Savings April 21, 2009

If the steep drop in interest rates means you now have a cheaper mortgage, here are some tips on what to do with that extra cash.

1.   Mortgage overpayments

Overpaying your mortgage each month will clear the debt quicker and potentially knocking years off your mortgage term.

For example, a borrower with a £150,000 tracker mortgage will have seen their monthly repayments drop by nearly £400 since interest rates peaked. Using this surplus money to overpay the mortgage each month, and making the same overpayment for the rest of the term, could reduce a 25-year mortgage by 11 years.

However, check first whether your mortgage provider will level any penalty fees for making overpayments.

2.   Pay off other debt

Often, loan and credit card repayments will be subject to much higher interest rates than a mortgage. In general, you should try and repay debts with the highest interest rates first. So it might not make sense to prioritise making overpayments on your mortgage, if you have outstanding credit card or loan debt on which you’re paying double-digit interest. Basically, do your sums and see what the most effective use of the surplus cash is.

3.   Save for a rainy day

While it’s generally recognised that paying down debt should be a priority, it’s also worth considering saving some of the extra money you have each month.

It’s a good idea to aim for savings of between four to six months’ pay to set aside for emergencies, or in case you’re unable to work or lose your job. In the current economic climate, even though savings interest rates are generally not as good as they were pre-credit crunch, having a bit of extra cash stashed away for a rainy day could provide a vital safety blanket.

It’s also worth saving towards events or purchases in the future, such as buying a new car that you might previously have taken out a loan to fund. Using your own savings is not only cheaper and more prudent than borrowing the cash, the credit crunch has made borrowing more difficult as lenders have tightened their lending criteria and increased their repayment interest rates.

4.   Pensions

It’s easy to push pensions to the back of your mind when planning finances, after all retirement may be decades away. But where pensions are concerned it pays to start saving early.

But how much to put aside? Only you will know how much you can afford, but the more you save, the more comfortable your retirement will be.

One suggestion of how much to put into a pension is to set aside a percentage of your salary that’s equivalent to at least half your age each month.

This might seem like a scary amount but the good news is your employer may help with contributions, and for every 80p a basic rate taxpayer saves and every 60p a high rate one puts into a pension, the Government will top up by £1 through tax relief.

Though, be aware that once you’ve put money into a pension, it’s locked up until you retire.

Remortgages : The basics April 21, 2009

For all the strange and seemingly confusing jargon, it’s important to remember that shopping for a mortgage is essentially just like for anything else. At its simplest, you want to pay as little as possible for the best you can get. In the same way that you wouldn’t want a contract that tied you into having to shop at just one supermarket for the next 30 years, so you don’t have to be tied into one and only one mortgage provider for the whole duration.

The process of remortgaging, therefore, recognises that mortgage lenders are in a highly competitive financial market. A whole range of different mortgage products are on offer, at different rates, to suit the varying needs of different borrowers, whose precise needs are going to change over the years.

Remortgaging, essentially, allows an existing mortgage borrower to switch lenders or to persuade an existing lender to offer a better deal.

And it’s precisely this “better deal” that is the sole motive for remortgaging. You remortgage to get a better deal. To return to our analogy with supermarkets, remortgaging allows you to shop around for the best deal that suits your needs and your pocket right now. And, as often as not, you’ll make the change because you can get just what you want at a better price – you can save money. And given the scale of your investment in a mortgage, those savings can be truly significant, running in to literally thousands of pounds! More than that, if you continued to shop around and changed to even better terms every so often, you could end up slashing loads off your mortgage.

But it’s not only cash savings that can make remortgaging a sensible option. Perhaps the terms and conditions of your current mortgage are no longer the most appropriate to your needs or maybe they are just too restrictive. Remortgaging can be a way to secure the terms that are suitable for you right now, whatever the ones that might have seemed reasonable when you first took out your mortgage.

Is this really too good to be true? Is there a downside to remortgaging? Well, it’s true that there’s a cost attached to engaging with the market more proactively and more flexibly. It’s a cost which you should be aware of, but not one which should necessarily dissuade you from remortgaging. As with any economic endeavour, it’s really just a question of ensuring that any gains outweigh the costs involved. The costs arise because of the penalty you’ll face in leaving your current lender, the fee you’ll need to pay for signing up with the new lender, together with any necessary legal expenses.

In a short article such as this, it’s clearly not possible to cover every angle of a subject as involved as remortgaging. Nevertheless, if the prospect is one you feel worth pursuing, the steps are really quite straight forward:

1st: Obtain a quote from your current mortgage provider, including any penalty for early termination. If they offer improved terms, conditions or repayment rates, there might not be any need to swap lenders anyway;

2nd: Shop around for any new mortgage offers that are appealing and obtain detailed quotes from these lenders;

3rd: Add together the penalty fees from your existing lender and the joining fees required by any new lender to calculate the cost of your remortgage;

4th: Calculate your mortgage repayment savings over a given number of years, subtract the costs you arrived at in the 3rd step, and see whether it’s worth making the switch;

5th: If you decide to proceed, make the formal application to the new lender you’ve chosen

6th: Allow between one and two months for the valuation of your property to be made and for any necessary legal processes;

7th: Sign the new mortgage deed, sit back and enjoy the new deal!

Property Crunch April 21, 2009

Now more than ever we have lots of people interested in fianance, with the credit crunch and subsequent economic woes pushing the usual boring subject of mortgages to the forefront of everyone’s minds.  How will the current crises affect how people buy  houses in the future?  This blog will attempt to find out.