Hallowe'en horrors

There are always financial deals in our past that we regret. Why did I take out that interest only mortgage? Why was credit refused for that new kitchen? Why did I borrow so much at university? HP on those trainers? Why did I forget to pay off that storecard that is charging me 29% interest? Why did I agree to take out more life insurance? Some financial deals that we did in the past can return each year to haunt us. But there are things we can do. and this is a good time to try to sort them out.

Mortgage
The biggest debt most of us ever have is our mortgage. And that means the repayments are probably your biggest expense each month. – and certainly the most important. But if you took out your mortgage in the past, you may well be paying far more than you need for your home. Most people pay what is called the standard variable rate of interest – typically around 5.5%. So if you have a £100,000 mortgage it is costing you £459 a month in interest alone. But if you remortgage – then you can get a rate as low as 3.2%. That will save you £192 a month which is a whopping £2300 a year!

But before you go out and celebrate this is not money to spend. Calthough remortgaging and saving money is a good idea, cutting back on your mortgage payments and spending it on a holiday is not a good ideais not. Instead, you should carry on paying the same amount. In that way you will Over the course of the first year you will pay £2300 off your the debt in the first year. And the same again the year after. And bBringing down debt is always a good idea. Especially if it is an interest only mortgage with no guarantee you can repay the debt at the end. After 25 years, if these rates lasted, you could have paid off £87,000 of your loan. And if It also means that when you want to sell your home and move on, more of it will be yours and there will be you will keep more more of the money to put towards your new home. And don’t say you cannot afford it! You’re affording it now aren’t you?

Now tThere are downsides to remortgaging. All tThe best deals only last a short time – typically two to five years. At the end of that time the rate of interest will shoot back up to what you’re paying now – or maybe more. When that happens and the savings will come to an end – put a note in your diary now to unless you remortgage again!. And there will be penalties if you want to stop the deal before the end - Put a note in your diary now! But do not change the deal before it comes to an end – there will probably be a financial penalty if you do that.never go for a deal that has a penalty that lasts longer than the savings.

Also yYou will have to pay some costs – there will be a valuation fee and a lawyer’s fees – say £200 each, and some lenders are cheeky enough to charge you what they call an ‘arrangement fee’. In other words you buy their mortgage and they charge you for the privilege! Each of these fees can be around £250. . But you can find lenders who will pay them for you as part of the deal. If you use go through a mortgage broker, they may charge you a fee too. One national broker who So everyone’s after your money. But with care you can find a broker who does not charge you you a fee is – L&C mortgages is one national chain which does not. Another broker Charcol is another broker that can be free – but only if you do it all yourself over the internet. You can also find lenders who will pay your valuation or legal fees as part of the deal. And some do not charge an arrangement fee. It can be more worthwhile to get some of the fees waived than go for the absolutely lowest interest rate. Before you talk to a broker, check out the lowest rates at MoneyFacts.

Credit refused!
It is a stomach churning moment. You’ve picked your new washing machinehi-fi, kitchen, your new TV, a carpet, or even a car. You’ve agreed the finance deal. A call is made. Sorry, the loan has not been approved. But don’t despair. First, you can do something about it. Why? Every lender company that lends you money subscribes to one of two credit reference agencies – Experian or Equifax. Many subscribe to both. They provide these firms with information about every payment you make – or delay. and whether they are ever late or you are in default. They also take record your name and address from the electoral rolle and of course record any occasions when you may have been taken to court for a debt. Strictly speaking there are no ‘black lists’ of people who cannot be given credit. But if your name and address does not tally with electoral rolel, if a lot of what credit checks have been made, – but not the outcomes - if you have missed payments, if you have ever really been in default, or if you have a county court judgement against you - these will all make it more difficult to get count against giving you credit.

Two things you can do. You can First, get your credit file from Experian and Equifax and see what is on it and how that may be counting against you. It only costs £2 and you can do it online.

Second, although it was embarrassing it might save you money. It is usually cheaper to arrange the finance separately from the purchase. Check out the cheapest credit using MoneyFacts – or go to your own bank appeal to the company who you want to borrow from and if that fails go to your own bank or a lender that knows you who may well be willing to lend you money. It could be a lot cheaper than credit you get in the shop.. Second, get your credit file from Experian and Equifax and see what is on it and how that may be counting against you.

Student loans
If you began university before 1 September 1998 then you have the old style student loan. The interest rate is linked fixed to the rate of inflation and is currently 3.1%. If you earn more than £21,634 a year then you will have to make regular payments. But a student loan is That’s probably the cheapest way to borrow loan you can get so do not repay more than you have to if you other debts – repay them first. your other debts first, and pay off the student loan last. You do not have to repay the loan if your gross earnings in 2003/04 are less than £21,364. If you have been repaying it before, apply for a deferment form – call 0870 60 60 70 4.

November 2003

e-mail Paul Lewis on paul@paullewis.co.uk