Interest rates are at historic lows. And many people are finding their
monthly mortgage payments plummeting. A few are actually paying 0% in other
words nothing! and more will follow them if the Bank Rate falls even lower.
The Government wants us all to go out and spend the money we save. That
will help keep the economy going. But it is much more sensible to use the spare
cash to reduce debt. After all, in the present economic climate none of us knows
when our job or our partners will come to an end.
One simple way to reduce your debt is to ignore the cut in your mortgage
payments and tell your lender you want to carry on paying the same amount. That
way you will be buying more of your home and when rates rise again as they
will your payments will be lower. You will also clear your debt more quickly.
Alternatively if you have other debts such as a credit card you do not
clear each month a better use for the money you save on your mortgage is to
pay them off. Suppose you have £2000 debt on your card and the APR is 16.9%. If
you make the minimum repayment each month it will take 31 years to clear it
even if you never use the card again. Over that time you will pay £3386 in
interest.
But if you use some of your mortgage savings to pay twice the current
minimum and fix that amount for the future then your debt will be clear in just
over two years and you will save nearly £3000 in interest. You have to stop
using the card of course.
Amazingly low mortgage rates mean we can reduce our debts and survive the
recession even if it turns into a depression.