Free advice line 0800 520 0923
The Bank of England’s interest rate cut to 1.5% in January came as huge relief to homeowners who have been struggling to pay bills. For people on tracker mortgages as well as homeowners on their lender’s variable rate, the cut represents a considerable monthly saving.
Quickly crunching some numbers reveals the saving potential. An average mortgage of £150,000 after the interest rate cut would give you a saving of £155 per month on your tracker mortgage. If you are only paying interest on your mortgage you stand to save around £3,000 a year. More.
Unfortunately, however, not all banks have handed the rate cut down to customers. Abbey, Lloyds TSB and Alliance & Leicester who make up the three biggest mortgage lenders in Britain, launched new tracker loans on the back of the rate cut announcement but never passed on the 1.5% reduction to lenders.
If you are one of the fortunate ones who stand so save some extra money as a result of the interest rate cut, you will be pleased to know we have 10 tips on how to put that money to work. Depending on your financial situation, you will find some of the 10 points more relevant than others, nevertheless, by adopting any of the following tips, you stand a better chance of surviving this economic storm.
Spare cash is hard to come by these days so it’s increasingly difficult to pay off debts. Money saved on your mortgage, however, provides the perfect opportunity to start reducing your most expensive debt, whether it is a credit card or loan.
A credit card with even an average interest rate of around 17% APR can be an expensive source of credit which you should reduce as fast as possible. For example, a borrowing of £5,000 on a credit card at the above rate will cost £9,614 in interest. In this case you can see how paying more than a minimum payment would be the way to go. Furthermore, by paying off a credit card debt you will not incur any penalties, unlike some loans which have redemption fees written into the contract.
If you like to pay off your credit card as soon as possible, click here, or more more information on credit cards, including how to get the best credit card deal, click here.
Not a popular suggestion we know, but putting the interest cut savings towards your mortgage can lead to substantial long-term benefits. Not only will you own your home that bit sooner, but also by reducing your existing mortgage you stand a better chance of refinancing to a better rate.
If you are on a tracker mortgage you will probably be able to increase your monthly repayments by as much as £400 or even £500 a month without incurring any penalties.
Lenders have been tightening their lending criteria drastically over the last year and have restricted the best mortgages to people with equity at around 40%. House prices are continuing to fall and with no end in sight for the mortgage crisis just yet, increasing your equity is the only sure way to capitalise on the best mortgage deals and in turn snap up a bargain.
That said, if you are planning on making a large purchase in the near future, such as a car, you could be better putting your interest savings in an account with a high interest yield. Putting money into your mortgage may mean you can’t get it back out again if you need it.
For more information on finding the best mortgages, click here.
The credit crunch has made it impossible for many people to save, causing many to feel insecure about their financial situation. Savings made from a mortgage rate cut however offer the ideal opportunity to invest in a high interest savings account. Banks are very keen to reward savers who are determined to invest money in a savings account on a regular basis, ie monthly. At time of writing, some savings accounts such as Abbey’s Super Fixed Rate Monthly Saver offer as much as 10% for a year. Other high paying accounts include Norwich & Peterborough’s Gold Savings Account that pays 8%.
For more tips on savings, click here
Not one for the feint hearted because the stock markets have been doing something of a kamikaze in recent times, but the best way to capitalise in a falling market is to make regular modest investments.
It’s never easy to judge when a stock has hit bottom and is set to rise again, so there is always a danger your investment may continue to make a loss until the market recovers. It has been proven however, that smaller investments made regularly during a market downturn reaps bigger rewards than a lump sum at say £1,000, would.
You may want to consider investing in equities or bonds, which do not require large pots of money. Investing your £120 interest cut saving would soon bear fruit worthy of any garden show.
Alternatively, you could invest your money in an ISA, for a fully comprehensive guide to ISAs, click here.
There’s no getting away from it, the financial crisis has led to a lot of fear and insecurity. Unemployment levels have been steadily rising since the crunch hit around August 2008 and thousands of homeowners have been forced to default on mortgages.
Payment Protection Insurance (PPI) can be peace of mind for many who suspect they could lose their job before the economy recovers. If you have a credit card or loan you will probably already have a PPI policy. A PPI policy sold under correct conditions can insure your income for up to a year. Policies typically cost between £25-£35 a month and can insure up to £1,000 in mortgage payments as well as your other loan and credit card obligations.
Note: PPI policies have received a lot of bad press recently and rightly so. Banks have been criticised by the Financial Services Authority for mis-selling PPIs to people who are not eligible for cover, ie the self-employed or the over 65s. If you already have a PPI policy you may be entitled to reclaim £1,000s. Find out more and start your application here.
Alternatively, if you are considering buying a PPI and would like to ensure you are not mis-sold a policy, click here.
If your child was born after 2002 they are automatically given a £250 Government trust fund voucher. Most of these vouchers are for stakeholder funds. Thankfully your child is too young to stress over the beating their investment has received in recent times but they still stand to gain over the long term. By the time they turn 18, when they can access the money, the £250 should have blossomed into a handsome sum.
What are Child Trust Funds? These funds are tax-free accounts open to investment from adults and say, grandparents, who would like to play a part in the child’s future. A Child Trust Fund is not without its limits; £100 is the maximum monthly deposit. While £100 a month is a fairly modest amount, especially if split between more than one adult, it promises to reap long-term dividends of roughly £35,750* – not at bad reward for an 18 year old.
* This calculation is based on 6.75% growth with contributions starting at age 0 incurring an annual charge of 1.5%.
For more information on children’s savings accounts, click here.
For the more long-sighted saver, adding to a pension fund may be the preferred option. Saving accounts are liable for tax deductions but your pension contributions are safely out of reach from the people down at the Inland Revenue.
Using your extra £120 mortgage rate money to start a pension fund is not recommended for anyone over 30-years-old, as the benefits will be too minimal later in life. For someone who has already been investing in a pension fund for some years, however, such as someone in their 50s, topping up their pension by £120 could make a worthwhile difference.
The money you save from the mortgage rate cut can be used to lower the cost of health treatments. Health cashplans are designed to take the pain out of dentist, doctor and optician expenses, all of which can add up over the course of a year.
Health cashplans are similar to health insurance policies but they are less expensive and used slightly differently. Health cashplans are suited to people who regularly attend the dentist or have their eyes examined, but can also be used to cover more expensive treatments.
Under a cashplan scheme you would pay the intitial costs of treatment upfront and reclaim the money by receipt from your cashplan provider. How much money you are entitled to reclaim largely depends on the nature of the cashplan policy – some are more comprehensive that others in order to fit your budget. It is worth noting, however, that many cashplans will not cover any preconditions you may have.
Typical policies can provide sufficient cover for less than £10 per month, which can help pay for prescriptions, eye glasses and some other medical procedures.
For more details try visiting:
hospital-saturdayMany parents are concerned about the standard of education and behaviour at state schools across Britain and would like to give their child a private education. Private school fees are undoubtedly expensive, but by planning ahead it is possible to set enough money aside to give your child the best education possible. By investing your mortgage savings in a tax-free insurance policy while your child is still an enfant, you should be able to provide a nice little nest egg for when they approach school age.
Alternatively, if your child is already at a private school, you should be allowed to pay school fees in advance, which can protect you against rising rates.
The world’s economy, especially ours in the West, relies on you spending your hard earned money in shops, restaurants, bars and stores. The government has effectively cut mortgage rates in order to put some spare cash in your pocket so you can spend it on the high street. Unfortunately, most people will need the extra money just to survive but for some, the cash can be used for day-to-day spending.
This last option may not benefit your family, or provide a future investment but it does feel good.
If you have a comment to make on the mortgage rate cut, please visit our Forum by clicking here.
