When the Bank of England base rate is low, your mortgage may be cheaper than you’d expected when you took the loan out. Lots of people (around 4 out of 10 mortgagees are now using trackers), have this type of loan, tracking the Bank of England’s base rate, plus just under one per cent above it. This may well be wonderful news when rates are low, but what do you do with the saving?
Whilst it may be tempting to increase your spending in other areas, interest rates can go up as well as come down, so keeping your mind set on the bricks and mortar side of things is sensible.
Over-paying your loan is an option which is well worth thinking about. You can shorten the length of your mortgage and make a significant saving in interest in the process. If rates stay down, it’s surprising how quickly you can make a difference. If they rise, then you won’t be in the embarrassing position of being so used to the lowered rate that you struggle to find the increased amount every month.
Another option to consider might be to let the “spare” money mount up in a savings account, so that you can eventually pay a lump sum off your mortgage. Obviously, if your mortgage is lower due to lower interest rates, then savings rates won’t be setting the world on fire, but it’s worth a look.
When checking on the interest rates offered to savers, remember that some of it will be spirited away to HM Revenue and Customs. You need to check that the figures add up and if it’s minimal, it’s probably easier to just overpay on the mortgage. However, there are some very tempting high interest account’s around from time to time. It’s very easy to check the various interest rates, just go on-line and use google to search for savings interest, in the first instance, to get an idea of what’s around.
If you’re not using your yearly tax-free cash ISA allowance, then that’s another issue. If you can save within this, then you keep the full savings interest. Remember though, you can’t “borrow” this nest-egg to put back later - once you’ve withdrawn the ISA, you’ve lost the tax advantage and can’t repurchase for that year. Remember, within an ISA you pay no capital gains tax and no further tax on the income. They’re trouble-free and you don’t even need to bother to tell the tax man about them, so that’s something less you need to remember. They’re just a very simple way of getting tax-free interest.
For absolutely anything to do with mortgages, you can find the best deals by going on-line and finding an independent broker, who can search the whole market to find the very best deals for you. There will be just one session of form-filling with all the help you need and then you can relax in the knowledge that you have someone on your side!
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