At the end of each month, if we’re lucky, some of us will have had more money go into our bank account than has gone out. It’s good to have extra cash in case of an emergency, but once we get more than we know what to do with we’ll sometimes blow it on things we don’t really want or need.
If your mortgage allows, it might be worth considering paying more than your normal instalment each month. We don’t usually consider a mortgage to be a savings product, but by paying it off quicker it has a similar effect to your overall financial position as saving at an interest rate equal to that of your mortgage. There are another two bonuses that come from making overpayments. The first is that on average you should end up remortgaging fewer times in your life, which means you won’t have to fork out for as many arrangement, valuation and solicitors fees. It also means that you’ll be applying for a lower loan to value mortgage each time, possibly making you eligible for the better deals as the equity in your property rises. Having too little equity in your home has been a real problem in the last year with the recent fall in property values.
A variation of this idea is the offset mortgage, whereby your bank account is linked to your mortgage account and interest is calculated on the difference between the two balances. The product we’ve all probably heard of is ‘the mortgage shrinker’ from the One Account, and while it is not quite as magical as the man off the television makes it look, it could he an attractive option for some people. The offset mortgage however, requires a lot of self-discipline and would not be suitable for many.
With the recent fall in interest rates, some people may have seen their repayments fall dramatically and are enjoying the extra money they have in their pocket. However maybe this is the time when they should take advantage of being able to reduce the outstanding balance. Interest rates won’t stay low forever and people may be kicking themselves when they do rise because they never took advantage of the opportunity to get their outstanding balance down. It may not seem like the most exciting thing to do with your extra cash, but at least it means you wouldn’t feel the pain as much if interest rates were to go back to the levels they were at a few years ago – or even worse if they rose to double figures like they were at during the late ‘80s and early ‘90s.
Before you start increasing your mortgage payments you should look at all your debts, credit cards and overdraft facilities and pay them off in order, starting with the one with the highest rate of interest attached to it. Some people, without thinking about it, will have a debt of say £1,000 on a credit card and have £1,000 sat in a savings account. By leaving it like this, they are basically throwing money down the drain.
It’s good to review your financial arrangements regularly to ensure you make the most of your money and it may be worthwhile contacting an Independent Financial Adviser who specialises in mortgages to help you obtain the mortgage that is most suited to your needs. Kieron Bassett Financial Services has two Independent Financial Advisers. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.
Jason Hinde CertPFS