Paying off your mortgage early

According to recent research, the current record low mortgage rates have enabled borrowers to pay off an extra £9 billion a year from their outstanding mortgage debt.

With many predicting that interest rates could rise again by next year or 2015 at the latest, it may be worth considering making overpayments on your mortgage now before the rates rise again.

Typically, banks allow borrowers to overpay by 10% of their mortgage each year without incurring any penalties. But do check the small print of your mortgage to check for any penalties.

Even overpaying a small amount each month, such as £50 or £100, can have a considerable effect on paying less overall in interest and reducing the term of your mortgage.

Remember though, that if you overpay on your mortgage you can’t easily get that money back. So ensure that you have an emergency fund set aside first. Alternatively, consider an offset mortgage whereby your savings are set against your mortgage debt and can help reduce the interest you pay on your mortgage. Or if you have outstanding debts, such as credit cards, consider remortgaging now to consolidate your debts and take advantage of the current low rates.

If you'd like to have a chat about mortgages, including re-mortgaging or buy-to-let, please do get in contact with us by email at info@lotusifa.co.uk or by phone on 0845 331 2604.

Be a savvy saver

As interest for savers dwindles even further, now is the time to ensure your savings and investments are in the right place.

Looking at the latest league tables, the top savers account is currently paying around 2% gross interest. So if you’re a top rate tax payer this means you’re getting around 1.2% net, significantly below current inflation of around 2.7%.

A couple of current accounts have been hitting the headlines with rates of up to 3% AER on certain balances. The snag is that they have to be run like a current account with a minimum monthly deposit, a certain amount of direct debits and often a monthly fee.

Whilst ISA’s are a great way of saving without having to pay tax on the interest, many cash ISA’s have also been hit with low rates. So don’t forget to check the rates regularly especially if there was a bonus or initial rate offered.

With a Stocks & Shares ISA, you pay no further tax on the income and no capital gains on any profits. So if you are investing for the longer-term, you can use your ISA allowance to ring-fence your profits.

So make sure you regularly review your savings and investments to ensure you’re getting the best deal for you and your attitude to risk.

If you would like to have a chat about your attitude to investment risk and return or would like to take advantage of your full ISA allowance, please contact us and we would be happy to help. 

5 Steps to Financial Freedom

These days, we tend to spend time planning other aspects of our lives, such as careers and kids, but fail to plan our financial goals.

Follow the 5 steps below and you can enjoy financial freedom and peace of mind:

#1: Budget planning
Before you can achieve anything, you need to figure out where you are now.

Take a good look at your current finances including your liabilities (mortgage, loans, credit cards), assets (house, cash, investments), incomings (salary, investment income) and outgoings (direct debits, food shopping etc).

If you have a cash surplus, you can start allocating to your financial goals straight away. If not, think about ways in which you can cut back or make changes. Most importantly, be realistic.

 

Image Source: FreeDigitialPhotos.Net

 

#2: Set your Goals
Financial goals don’t just happen, you need to make them happen. Think about where you want to be in 5 to 10 years. Goals can be things like keeping up your current standard of living in retirement, being mortgage free, having freedom to travel or indulge in hobbies, spending more time with family and friends. Once you know your goals, you can plan how to get there.

Plan for your retirement and ensure you’re making sufficient pension contributions. Think about how much you’ll need to support your required standard of living in retirement.

#3: Smart Saving & Investment
Take advantage of tax free saving such as ISAs and Junior ISAs. The 2013/14 allowance for a stocks & shares ISA is £11,520 and £3,720 for a Junior ISA. Don’t forget, you can’t carry over any unused allowance to the following tax year.

Ensure you have an ‘emergency pot’ available for an unexpected events. This should be in an easy access account but do your research to ensure you are getting the best rate of interest available and review regularly.

Ensure that your investments are working for you whilst taking into account your attitude to risk.

#4: Review regularly
Make sure you regularly review your goals, investments, savings and insurance needs. Plus ensure you have an accurate and up-to-date Will.

Do this on an annual basis or if there are any major changes to your circumstances.

 #5: Seek Professional Advice
Once you’ve gone through the 4 steps, you can put together your financial plan.  Be proactive, not reactive.

And if in doubt, seek professional advice to help you achieve your goals.

Private school fee planning

Private school fees have shot up in recent years with a typical school term now costing around £4,765. And for the majority of parents, affording such fees requires careful planning and regular saving.

In addition to traditional saving, more innovative strategies can be applied such as using the business or reducing the grandparents’ inheritance-tax bill. 

For example each grandparent can give up to £3,000 a year free from inheritance tax, whether they pay into savings accounts, trusts, old child trust funds or Junior ISAs. 

You could also set up a discretionary trust so that grandparents can contribute towards the fees. This is easy to do and the income is treated as the child's own for tax purposes. Parents on the other hand cannot do this, as the income generated would be taxed as if it belonged to the parents.

Of course, all these depend on your own personal circumstances and if you’d like to have a chat about school fee planning, then please get in touch with us.

Real cost of inflation

Whilst interest rates have remained at 0.5% for more than four years, comparatively high inflation rates have been eroding real income.

There is much debate over how inflation is calculated and what is included in the RPI’s “basket of goods & services”. But as most of us know, everything seems to be getting more and more expensive from the cost of food shopping, to utility bills to the price of petrol. Can you remember when it was unthought-of for petrol to be over £1 a litre and now it’s 133p a litre?

 

 

Reported UK consumer price inflation was 2.7% in May meaning that on average you need to spend £102.70 now to buy things you bought 12 months ago for £100. But of course everyone’s household spending is different and the BBC have got a simple calculator on their website to work out how inflation affects you (found at http://www.bbc.co.uk/news/business-11331052).

So where does this leave your investments especially those sitting in nil-paying or low paying bank accounts? How much will they will be worth in 10 years time in real terms? Banish the inertia regarding your investments and seriously consider where they would be best invested for the long term.