The number of people with credit card debt and personal loans has never been higher and the latest interest rate rise is only going to put people's already strained finances under increasing pressure. In fact, recent reports suggest that already, 1.2million utility bill payments are being missed every month because homeowners cannot afford all the bills and credit they have committed themselves to*.
The latest interest rate rises now mean that a typical ?125,000 is now ?130 more expensive than a year ago. In fact, it is reckoned that as much as 44% of a family's income is now being swallowed up by mortgage costs. So, it's fair to say that if interest rates continue to rise at this pace, homeowners really could find themselves struggling to make their repayments in the future.
In the back of everyone's mind is that interest rates will rise as high as they did in the 1990s (in some cases interest rates rose to as much as 19%), which is why more and more of us are looking for secure ways to protect our mortgage payments in case they do increase in the future.
So, is there a way to avoid your mortgage payments spiraling out of control?
Fixed rate mortgages are one way to protect you and your home against the current period of rising interest rates. Put simply, these types of mortgages are set at a specific interest rate for a number of years, which can't be changed for the period of the mortgage. This means you know exactly what to budget for every month until the mortgage term finishes.
This will mean that there is less chance of your home being repossessed because you have missed mortgage payments, and you won't having a black mark against your name.
Fixed rate mortgages really are worth considering when the financial climate is so uncertain.
*Source: MoneyExpert.com
Mortgage debt elimination, this is the word that rings a bell in many of the home owners out there. Ever imagined paying off your mortgage in one go when you strike a first prize lottery or the day you inherited a lump sum of cash from a deceased old woman down the street whom you always say good morning to? Reality says this is not going to happen nor is there any magical formula that will pay off your mortgage the next day.
Well, if you're still reading after the first paragraph, there are actually ways that would make you better off by lightening your mortgage debt.
First off, one of the most commonly adopted methods is to increase your monthly mortgage repayment. By increasing your monthly repayment rates, you are effectively shortening the duration of your repayment period. I'm sure most of the homeowners out there would realize that by the end of their repayment period, they would have paid off more than the value of the house itself. This addition of payments would namely be known as interest rates. By shortening your repayment period, you are effectively decreasing the amount of interest rates you pay. A quick illustration says that if you pay an extra $100 per month for a $120,000 (30 years @ 9%) mortgage, you would be looking for a saving of approximately $80,000 after the end of your repayment.
It should be noted that there are shortcomings in increasing your mortgage repayment rates. For example, the extra $100 per month could have been invested elsewhere that would potentially generate more than $80,000 under the same period of time. However imagine this; if you are someone constantly being tempted to stick your hand into the piggy bank, increasing your repayment rates would be a wiser option as there is a good chance of you blowing away your investment/savings before the compounding of interest rate takes effect.
Secondly, this seems like a rather old suggestion but if you cannot afford more than 20% down payment, you should rethink the value of your house. The reason is because for a less than 20% down, you will be required to pay for additional insurance which is known as mortgage insurance. Unlike a life insurance, the mortgage insurance is there to protect the better interest of the bank (ssshh, let's not say you hear that from me) because it covers only the mortgage. Life insurance basically covers you because in case unpredicted fate takes place in your life, the compensation would be able to cover your mortgage and your life whereas mortgage insurance basically covers only, errr the mortgage.
Last but not least, consider this when you are taking your mortgage. If you are a wise money saver (or we call them penny pincher in some cases) and if this is within your means, take a shorter repayment period. In the short term, it may seem you are paying more compared to other homeowners. However consider this, your mortgage is spread across for 15 years as compare to 30 years and effectively, although you are paying an extra say $100 per month, the savings from interest rate paid for a 30 years mortgage will not even come close to what you have saved from a 15 year mortgage. Additionally, the plus is you get a peace of mind and security knowing you have paid off your mortgage earlier.
Think about this, buying a house is one of life's biggest purchase. If you think you are not ready, take a little time off for reconsideration as the decision you make today would affect you for years to come.
Both Chris Gardner & Sunny Tan are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Chris Gardner has sinced written about articles on various topics from Mortgage, Finances. Author: Chris Gardner Managing Director of National & Capital, an independent mortgage broker based in Southend-on-Sea.Visit the National & Capital website to see how to avoid the interest rate rise by getting an. Chris Gardner's top article generates over 40500 views. to your Favourites.
Sunny Tan has sinced written about articles on various topics from Credit Cards, Cars and Mortgage. The new bankruptcy law provisions have prevented people from above a certain income level from being able to eliminate or cancel their debt through bankruptcy. Find out more on how you can save yourself with Sunny's essential. Sunny Tan's top article generates over 5400 views. to your Favourites.