The Tip: Pay one mortgage payment extra every year to save money

Paying one additional mortgage payment each year, whether in a lump sum or monthly increments, can lower a 25-year loan down to 15 years.  If you pay more than one extra payment, the number of years will decrease even more.  Since this additional payment will be applied only to the principal and not the interest, you end up saving thousands and thousands of pounds on the Total Amount Repayable

This is a good idea if…

You have the spare money and a flexible rate mortgage. A mortgage is by far the biggest financial burden most people take on in their lifetime (apart from taxes!) and if you can reduce the time it takes to pay this down, you will be far better off in the long run. And if you are a long term planner with good financial discipline then this would be a good idea..

However…

In the current financial climate it might be a better idea to pay off any debt that carries a higher interest, like car loans, home improvement loans and credit cards and store cards. The store cards usually have the highest interest rate so you may want to pay those off first, then the credit cards and so on.

Paying off your credit cards also means that you would be able to use the money available on your credit card should the need arise, where as most mortgage products would not let you have your money back.  Having an available line of credit (lots of money available on your credit card) is also good should you suddenly find yourself jobless.

Does anyone else feel angry with the banks for the way they have caused the current recession?

I know I’m not pretty sympathetic to their current situation and with savings interests at an all time low I have added reason to be frustrated. When I had debt and overdrafts they were very keen on fining me, taking 1.25% interest a month and other charges that I felt weren’t particularly fair.

And now that I have a little saved up, they give me nothing at all.

I did buy some banking shares a few months ago and they have done REALLY well for me, but you never know.

Then yesterday I found an alternative that gave me the chance to give back directly to people or companies that need it; Zopa

Are you familiar with Micro lending or person to person lending? Organisations like Kiva connect people usually in the poorer parts of the world with other people that have money to lend. But we are talking about small sums.  The beauty of micro lending is that anyone can lend the borrower a small part of the loan they need, say if I needed five hundred pounds, 5 people could lend it to me – or 25 for that matter.

What this means is that anyone can lend money directly to anyone else, provided systems like Kiva are in place. Which it’s not if you live in the UK.

And that is the gap that is being filled by Zopa

For people with money, Zopa gives you the chance to earn a higher interest rate, set by you, and accepted by the borrower. It also gives you a chance to put money where it is needed – directly to the people that need it. If you hate the banks, then this would surely feel great!

For people who need money, you get to borrow it from real people, not banks. People who have put their trust and money in you to get your business idea going.

However, if you have defaults, CCJ’s or can’t prove you earn more than 12 thousand pounds a year and can afford to pay, then there is no point in trying to borrow.

But in my case, I want to earn a better interest on whatever savings I have so I have joined Zopa as a lender. Are you joining me there too?

Here is a recent financial advice report for people lucky enough to have savings:

Cash ISAs

Cash ISAs are a good place to invest as your
money earns interest without being taxed.
You can put away up to £3,600 a year and
you will generally earn interest upwards of
6% depending on which ISA you choose.
However, interest rates on instant-access
ISAs are variable and many change in
accordance with the Bank of England’s.
You can choose a fixed-rate ISA, which
guarantees a specific rate provided you do
not withdraw funds for an agreed term
(typically 1 to 5 years). The best thing to do
is shop around and choose an ISA that can
earn you the best interest rate while suiting
your needs.

Savings accounts

Another place to keep your money is in a
savings account. Although, interest earned
on this money will be taxed, competitive
interest rates are on offer as banks compete
to get hold of your money in the current
financial climate. The different types of
savings accounts are:-

Instant access: With this type of account you
can access your money on demand without
incurring a penalty. Make sure you read the
small print as some so-called ‘Instant Access’
accounts may punish you for withdrawals by
docking your interest. Others only offer an
introductory rate of interest that will be
reduced after a certain period of time.

Fixed term savings: You will be able to earn
higher rates of interest if you agree to lock
your money away for a certain period of time.
However, you need to be aware that if you
do need to withdraw before the end of the
agreed term some accounts may punish you
by taking some or all of the interest earned.
Regular

Savings: If you plan on putting
money away every month you may be
eligible for some of the best rates available.
However, regular saving accounts often
come with some of the most stringent terms
and conditions, such as limits on
withdrawals and mandatory monthly
deposits, you have to pay attention and keep
on top of your regular savings.
Keeping your savings safe

The legacy of the collapse of Northern Rock
means more and more people are concerned
with the safety of their savings. It is possible
to protect your savings so you can sleep a
little easier at night.

The most important thing is to save with
those covered by the Financial Services
Compensation Scheme (FSCS), an
independent fund coordinated by the FSA
(Financial Services Authority).

Under the FSCS, as at the beginning of
October, your first £50,000 is protected
(£100,000 on a joint account), but due to
the economic climate these figures may
change. However, it is important to realise
that this amount applies to your savings per
institution as opposed to per account.

Outlook

There is always an argument for taking
things too far and blowing the fear of
economic crisis out of proportion. The best
thing to do is to become educated, know
what’s on offer and choose the best savings
plan that suits you and your personal
financial position.

Provided by DeverauxMontague Financial Advisors