At present, savings rates are low and therefore making overpayments is really a no-brainer for most of us. You can save £10,000’s in interest and reduce your mortgage length if done correctly.
Some of the pro’s:
Reduce your mortgage length by years
You will pay zero interest on the overpayments
Saving on mortgage interest can often beat putting your money into savings.
Banking institutes do look highly at overpayments when it comes to approving mortgages or loans.
A mortgage of £10,000 at 3%, results in annual interest of £300 or £10,000 of savings at 1%, gives you annual interest of only £100. Therefore paying the debt with the £10,000 savings would see you £200 a year better off.
If your mortgage is interest rate is 2%, you would need a savings account rate of 2.5% or above (before tax) to make saving outweigh the benefit of overpaying. You can find calculators via google that will provide you the figure determined to your mortgage interest rate.
Few things to check first…
Some mortgage providers set limits (commonly 10% of the original loan amount or £10,000) check this first, otherwise you could be stung for huge overpayment fees.
Pay your most expensive debt first, clear high interest credit card balances or loans before making overpayments.
Ensure your mortgage provider doesn’t lower your fixed mortgage payments, otherwise this will not reduce your term or interest savings.
Ensure you have adequate emergency funds for unexpected problems. (Exception – mortgage with flexible features)
Some mortgage providers ‘store’ your overpayments and allow you to withdraw these overpayments if need funds.
How much should I over pay?
However much you can afford to pay, it doesn’t need to mega bucks and it can be the odd payment here and there.
Paying just £50 monthly on a 25year, £200,000, 3% interest rate mortgage would save you £6,722 and nearly 2 years.
£200 monthly would save a whopping £21,609 nearly 6 years.
Again, you can play around on repayment calculators found via google and work out the best amount for you.
Hopefully, this blog post has highlighted the benefits of mortgage overpayments.
Overdrafts are designed for short-term borrowing or emergencies and are one of the MOST expensive ways to borrow.
The phrase ‘living in my overdraft’ unfortunately counts for more than 68% of people that have one. Meaning every single month they enter their overdraft and treat it like its an extension of their salary.
This habit becomes a cycle of expensive charges and continued debt. If the overdraft limit exceeds their monthly salary, then they will never break the cycle.
Overdrafts have been a fantastic earner for banks and building societies. They charged extortionate amounts of charges for bouncing direct debits, late payments and entering into unauthorised overdrafts.
In the early 2000’s, people started claiming back what they believed were unfair bank charges and thousands of claims were filed by customers which caused a radical shift by the banks to cut back on these high fees.
Unfortunately, banks were not willing to lose this lucrative cash cow, so they started adding fees to arranged overdraft limits as well.
Charges vary between banks but charges could be:
a fee, which could be daily (50p-£3 a day), weekly or monthly
interest, which can be up to 15-20% equivalent annual rate (EAR).
That means the 68% that depend on the overdraft are paying on average £30 a month in charges. Some banking institutions have ‘minimum’ overdraft limits, mostly likely in the hope you struggle to get out of it.
So my advice:
If you are living in it, you don’t need it! Take the hit one month and cancel it, because after your next payday you won’t need it.
Start a savings account instead for emergencies.
If you must have one, keep the limit to 10% of your monthly salary and only use it if really necessary.
Sometime debt gets out of hand. If they do you should seek advice straight away and a good place to start is the money advice service.
It was probably because you still spend money like a 16 year old with their first paycheque, spending money on crap, impulsive and wasteful purchases… allowing the monkey brain to take over.
Well, try this approach
First, ask yourself the following:
How much do I have to spend daily on travel, food etc
How much disposable income do I have this month?
How much disposable income do I really want to spend?
Wheres my fucking wallet/purse?
Now, at the start of the month withdraw that figure from an ATM, divide it into weeks and carry only that weeks amount on you. Leave your cards at home and put away the fucking credit cards!
What happens now?
The first week, you will be worried about getting mugged or losing your wallet, probably checking your pocket every 5 minutes but it is extremely unlikely either of these will happen and eventually you will relax.
The second week, you will become very aware of how much you have left for the week and impulsive purchasing will start to subside. Your mind will start to value everyday purchases because it can physically see the exchange of money rather than a tap of plastic and some digital numbers diminishing.
The third week, you will start questioning yourself before buying something, like… do I really need this dress? or have I earned it?. This means big impulsive purchases will likely stop and you will assess your financial situation before making purchases.
And finally the fourth week, you will have become tight as fuck and with a different mindset on money.
This conditioning technique might take a few months to build into habit but it will help you in the long-term.
Should I really carry that much cash on me?
Well, if you are carrying hundreds of pounds, I would suggest you are spending too much each week and should probably try saving more! If you are really concerned, divide it up into daily amounts and carry that, they idea is so you can relate to how much that ‘purchase’ will impact on your weekly budget.
Most of my spending is direct debits, what should I do?
For this to work, you shouldn’t have the majority of payments coming out in direct debits, only essential payments. If you are struggling financially every month then maybe you should be cancelling that Netflix subscription and dial it back to basics with this strategy.
I have other expenses like birthdays this month, should I count these in my budget?
Yes! you should only be spending in your means regardless to the occasion. If you are really forced to spend over the weekly budget then rein the spending in the following week, that way it keeps overall spending within the monthly budget.
I go out at the weekends with friends, should I include this in the budget?
Again, yes! This budget is based on your disposable income and any spending on social activities need to be in this income bracket regardless to following this strategy.
Why should I leave my cards at home?
Because it removes the temptation of using them and will prevent the mindset developing.
Is this really a good option for me?
Maybe, but you won’t know until you give it try.
I have money left over every week, what should I do?
You could roll it into the next week but my advice would be to save it either for the long-term or until a big purchase comes along, you will feel less guilty and happy knowing disposable – disposables incomes paid for it.
You should also reassess how much you actually ‘need’ every month.
Welcome to my blog…. where I will discuss and present no-bullshit topics that might have an impact in your bank account.
I will hopefully pass on some wisdom and lessons from my experience working for Government regulators in both finance and competition markets.
Some of this so called wisdom will include
MONEY MAKING ADVICE
My blog posts will be straight talking and probably contain some swearing (to labour the point). They might even spell the obvious when I’m dissecting dumb ideas, like multi-level marketing or drop-shipping from Ali-fucking baba for instance!
Where will this blog will end up? I have no idea but lets find out.
It’s a gamble… and anyone that tells you different is talking shit.
In 2013, I attended a course on developing trends of online criminality and one of the presentations covered the two most prominent coins at the time Bitcoin and Litecoin.
Now, I would like to boast how I was interested in the decentralised system that underpins cryptocurrency or even amazed by advantages to countries where the majority of the population don’t even have a bank account but that would be a lie. I was shown the value of bitcoin on a graph going up and being the opportunistic weasel I am, I thought I’ll have some of that!
So I became an early-ish adopter, when I brought £5500 worth at about £64 a coin from the now defunct exchange MtGox.
Within the same year, I signed up to Ripple and was given 1000 free ripples when they were first released and I still own these somewhere on an old laptop. Today they are worth between £200 – £300.
Selling too soon…
In January 2014, I lost my job and decided I needed to sell some of my bitcoin to help pay for my outgoings. I had most bitcoins saved in a wallet on a USB stick and the rest were being traded daily on the MtGox exchange. The latter proved to be the wrong choice because after few quick withdrawals from MtGox, it started taking weeks, until finally I received notice that MtGox had suspended withdrawals and subsequently filed for bankruptcy.
Those motherfuckers still hold 1.5 of my bitcoins and its unlikely I will see them returned in this century.
The rest I sold through various exchanges during the peak of 2014, when the Cypriot and Greek governments threatened to dip into peoples bank accounts to save the financially fucked countries and people used Bitcoin to protect themselves. So I brought the coins at about £64 and sold most for varying amounts between £490 – £680, meaning I made a nice return minus the relevant fees and taxes.
Roll on 2017…
I hadn’t given much thought about crypto until 2017, when it appeared on every new site and so I looked up the value. I felt instantly sick because it had risen to over £11,000, and then £15,000 before peaking in December 2017 at over £17,000 a coin… fuck! My original holding would be have worth about £1.5 million and I sold for far less.
It ruined Christmas that year and for months I would be thinking about it but in the end, it obviously wasn’t meant to be and I didn’t do too badly.
fuck fuck fuck…
Gamble or investment?
It’s a gamble… and anyone that tells you different is talking shit.
Nobody on this planet can predict accurately what the value of bitcoin might be in 1 minute, 1 week or 1 years’ time. Those that predict a coin will rise thousands of pounds before the years out have no basis or evidence that will happen because the truth is… they are as clueless as you but are probably holding some crypto they want to pump and dump.
Take the self-proclaimed Bitcoin poster boy Eric Finman, at 12 years old he purchased $1000 worth of Bitcoin and is supposedly now a bitcoin millionaire from which he tries to portray himself as some kind of Bitcoin Buffett investor that foresaw and continues to foresee the rise or fall of the Bitcoin price. This is nonsense, he gambled and may have won the Bitcoin lottery but he is no Warren Buffett.
Unfortunately, with no regulation it means it is practically the Wild West and leaves novice investors very vulnerable.
The problem with Bitcoin
It is not backed by anything, it is not mainstream, it is not been widely adopted and could be stopped overnight.
Ok, the point of being decentralised means the Government would not be able to shutdown crypto but do you honestly believe they will allow a currency that is not centrally controlled to become widely adopted?… Not a chance, which means they are likely to disrupt the market enough that the value drops below a Vietnamese Dong. How will they do this?
Its simple really…
Ban exchanges from transferring crypto into traditional currency over fears of money laundering, tax evasion, ability to fund terrorism etc… that would fuck most casual ‘investors’ that don’t want to purchase milk with bitcoin and prefer to cash out into actual money.
Prevent mainstream retailers from accepting Bitcoin both directly or indirectly, by banning it outright because the fears outlined above or persuading banks to freeze or block accounts that are used to convert Bitcoins to traditional currencies.
Banking restrictions. I can’t imagine banks will need that much convincing to clamp down on customers using bitcoin or the like, after all crypto is a direct competitor.
The government only needs to make it unattractive for the casual ‘investors’ that want to make money by selling crypto at a high before exchanging it into a traditional currency. These people far outweigh the die-hard crypto fanatics that believe a revolution will happen and they will eventually be able just to live on their chosen coin.
And why hasn’t the government done this yet? Because the Cryto market is a microscopic blip on the radar of a global trillion dollar financial system. Almost like a parasite inside a mosquito, perched on a rhinoceros arse and it could be squashed at any moment.
So is Cryto worth it?
Yes and no.
People are making money and serious money everyday trading crypto, so yes you can make money if you are smart and lucky but in the long term nobody knows.
So treat it for what it is, a GAMBLE not an investment and only bet what you can afford to lose!
Ignore the forums of so called experts and the snake oil salesmen like Erik Finman.
I hope you have better luck than I did and I hope you aren’t holding the can when the music stops.