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Archive for Inflation

Paying off your mortgage early

Wednesday, April 2nd, 2008

Imagine this scenario, you have come into a little money maybe from a big bonus at work or that rich old aunt of your has passed away and left you with all her money. Now you have the opportunity to pay back your entire mortgage. Well should you do it? The answer is yes and I’m now going to tell why. The answer may be a little complicated but take my word for it.

Right now inflation is low, so debt is pretty much remaining at the same proportion of your income over time. You see if there was high inflation then you could rely on inflationary increases in your income but that’s not going to happen any time soon. Also the government has removed the tax incentive to hang onto your debt in the form of mortgage tax relief.

So lets break it down. Imagine you have a 25 year home loan at £100,000 and interest rates are at 6 percent. Overpaying on that mortgage by say £100 a month could save you as much as £27,000 and cut the life of your loan by as much as six years. That mean you can take that tropical cruise you have always wanted much earlier with plenty of money to finance it.

A word of caution however, some lenders out there charge what is known as an Early Redemption Penalty. These charges can continue for several years after you have paid back the mortgage. In a situation like this it may not be so wise to pay back your mortgage early. Sometimes you just can’t beat the banks.

Posted in Borrowing, Consumer Credit, Financial products, Homeowners, Housing news, Inflation, mortgages, Property, Remortgaging, Secured loans, UK Finance | No Comments »

Mortgage rates could continue to rise

Thursday, February 7th, 2008

The sub-prime mortgage crises might lead to banks trying increasingly drastic behaviour in an attempt to recoup some of their losses, including a hike in mortgage repayments.

Economists are warning that banks and building societies are going to have to raise rates as a result of the current global credit crunch.

This is primarily a result of banks’ reluctance to bring down the rates they charge when lending between themselves. This has caused the cost of financing mortgages by banks to dramatically increase and if the reluctance of banks to bring down rates for inter-bank lending persists we could see these costs coming through the system and hitting borrowers.

Despite all this, banks are also at war in an attempt to attract new customers and recent adverts by some banks are claiming to be cutting the cost of fixed rate home loans.

Banks right now are extremely exposed to bad loan debt in the US and as long as this crisis persists the more likely the chance that eventually this will start to filter through to customers.

It is possible that if the credit crunch persists for much longer, mortgage and loan rates could start to go up. Banks are increasingly turning towards savers as a way of freeing up credit and even though the Bank of England put interest rate rises on hold, some banks are increasing fixed term savings rates.

If banks continue to have difficulty funding mortgages we could well see mortgage rates going up in the near future.

Posted in Bad Credit, Banking, Borrowing, Consumer Credit, Debt management, Financial news, Homeowner Loans, Homeowners, House buying, Inflation, interest rates, mortgages, Property, Secured loans, UK Finance | No Comments »

Rates widely predicted to fall when Bank meets again

Thursday, February 7th, 2008

While the Bank of England decided the leave rates at 5.75% during their last meeting, further warnings of global economic turmoil are increasing speculation among financial experts that interest rates may well start to come down soon.

There is a growing consensus amongst economists that interest rates have now peaked. This prediction was further strengthened with a comment the BoE recently released.

One of the biggest reasons the rate rises have had such a large impact is that bank to bank lending is at its highest level in almost a decade. The amount of bank to bank lending depends on the rate banks charge each other for lending which now stands at 6.88%.

This financial turbulence is beginning to be felt by households also result out for the last quarter show that house price inflation was down to 1.6%. The cost of borrowing has gone up considerably in recent months, putting many of us off looking for a new home. Anyone struggling with their home loan repayments should be relieved to hear news that interest rates are not going up again.

Despite the high interest rates, inflation is expected to persist in all areas of the economy. The poor weather last summer meant that harvests were down, which explains the price increase for many goods in your local super market. With fuel costs also at their highest ever rates, it’s no wonder that households are having to borrow money to make ends meet.

While inflation in the housing sector has come down in recent months, house prices are not expected to start falling because of a general shortage of housing across the country and strong employment figures.  

Posted in Banking, Borrowing, Consumer Credit, Consumer debt, Debt management, Financial news, Homeowner Loans, Homeowners, Inflation, interest rates, mortgages, Property, UK Finance | No Comments »

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