What is the truth behind your finances?
Between 15 and 20% of people in our country (United Kingdom) own their own businesses. This statistic is on the rise thanks to the incredible invention of the Internet. The astonishing truth is that of these, only 5% are genuinely financially free! You may see a lot of expensive cars driving our roads and big houses inhabited by seemingly wealthy people, but these houses and cars are not paid for yet.
Never in our history has it been so easy to lend money. Banks and construction companies are doing their best to lend us money. You can sign your life on a 50 year mortgage these days if you want! Banks and building societies are offering 125% mortgages to first-time buyers, and business is looking great on the outside.
Credit card companies love today’s economy, too. You can borrow enough money on a credit card today to buy a new car! The loan companies are also taking advantage of ignorant and naive people and this really worries me. The ad market is going crazy with media ads for consolidation loans. Do you know the type? “We’ll Help You Consolidate All Your Existing Loans Into One Affordable Monthly Payment” They call this type of loan a HOMEOWNER loan. Yes, you can consolidate all of your existing debt into one affordable monthly loan, but what do you call affordable? People are consolidating their current debts into a huge debt and lending the money to pay off this new debt. Paying this debt in full will take these people years. In addition, they have secured this loan in their only ASSET: their HOME!
These unfortunate people are not thinking about the future and their long-term future plans, they are thinking about the immediate and present situation. Meanwhile, what happens when interest rates start to rise? Interest rates on a consolidation loan will take years to pay off, and although you owe money to your lender, you are not sure at all because your consolidation loan is secured at your home.
What does this mean?
If you cannot pay your loan, the Loan Company WILL TAKE YOUR HOME as payment!
The reason it’s so easy to borrow money these days is because interest rates are so low. At the time of this writing, our current government has set the base loan rate so low that people are getting dangerously into debt due to their own ignorance of the economy. What is really happening will become apparent in the coming years, when the tide turns and interest rates begin to rise sharply. If you are not financially free or in control of your assets when the tide turns, you will lose everything. History always repeats itself and sooner or later a recession will hit world business markets and all those people who borrowed huge amounts of money to buy their big house and their BMW or Mercedes will find themselves in big financial trouble.
Wait, it gets worse!
SHOCK – HORROR!
Once the tide turns, interest rates will take a hit, and if you’re unsure, your financial world will collapse. The mistake people have made is foolishly believing that their loan rates will stay the same, but they won’t. Let me explain my theory in simple terms by giving you a simple example:
If you have a current ‘interest only’ mortgage of, say, £ 100k and the applied interest rate is £ 5%, your monthly payment will increase with the interest rate. What happens if the interest rate goes up to 10%? Your mortgage could double. In 1989 the interest rate was reduced to 15%. If this happens (and it could), your current mortgage payments could triple! How are you going to survive financially?
Your mortgage payments could increase by 300% within 12 months, and any other loans you may have will also require a payment. If your salary does not allow for sufficient funds to meet these demands, you will lose everything slowly and painfully. When interest rates start to rise (and they will), debt consolidation companies will charge you. Before you know it, you could owe money for the rest of your life, and if you can’t pay what you owe, your lender will take your car, your house, and your clothes off your back to meet their demands.
WHICH IS THE ANSWER?
My advice is to pay off your existing debts as soon as possible. If you drive a car financed by a finance company, pay off this loan as soon as possible. Contact the finance company and ask them for a final settlement figure. This way you will know exactly how much debt you have. If you can afford to pay off your finances early, take advantage of this and pay off immediately. In this way, you will be the full owner of your car, you will have paid less interest and you will have some capital if you need it. If you can’t afford the finances right now, check what interest rate you are currently paying and search the internet or high street for a lower interest rate. Whatever you do, don’t delay in taking control of your finances today.
Another mistake people make is falling into the “false economy” trap. They start with the right intentions when looking for a lower interest rate on their mortgage. What this means is that your monthly payments become lower. The mistake they make is thinking that they have more money in their pocket. In effect, this is a false economy. Instead of settling for more money in your pocket and still supporting a 10-year loan term (or whatever), why not use this extra money to increase your loan principal payment?
This simple technique is called ‘Mortgage Acceleration’. Banks and mortgage companies know all about mortgage acceleration, but they don’t mention it because it causes them to lose a lot of money on interest payments.
If you increase your principal payments on your mortgage every month, you are paying off the entire loan faster. If you can cut 2 years off your loan, not only have you cut your mortgage by 2 years, but you’ve saved yourself a bundle in interest charges. A £ 50k 25-year mortgage paid 16 years in advance could save you over £ 60k in interest! (depends on interest rate) Ask your bank or mortgage company about ‘Mortgage Acceleration’ and see the look of loss on their face.
Don’t settle for a lower interest rate and spread your loan payments thinking you’re saving money – you’re not. You are only spreading your debt! You should pay off this loan as soon as possible while the interest rates are low. The longer it takes to pay off your mortgage, the higher the interest rate that the bank or mortgage society will take from you. While the interest rate is currently around 5%, speed up your payment NOW and save even more money. Take advantage of the fact that if interest rates are currently low, the amount of interest you pay in addition to your loan will also be low. If you can afford to increase your payment while interest rates are low, I urge you to take advantage of this immediately. If there is any way that you can speed up your loan and pay it off sooner, I highly recommend that you start your finance organization here and organize this today. A simple £ 50 per month increase in your mortgage payments will save you money on long-term interest payments. Your first step in taking control of your financial world is to pay off all of your existing debts as quickly as possible. When you are debt free, you will be financially free and feel like a great weight has been lifted off your shoulders.
POSITIVE ACTION PLAN:
Contact the bank or mortgage company with which you have your mortgage. Ask for a final settlement figure on your mortgage and also ask about the current interest rate you are paying. Chances are, if you haven’t verified the interest rate you are currently paying in the last 12 months, you could immediately save money by choosing a better deal. Today there are many lenders willing to offer you competitive offers on your mortgage, and I advise you to review all of them before committing to one. A simple 1% interest savings can save you pounds each month. With this savings in interest payments, use this extra money to increase your principal payments. If you only manage to cut a year off your mortgage life, it will be one year less that you will be in debt and one year before you will become financially independent.
Speaking of your mortgage, if you currently have an endowment policy along with your mortgage, research this policy thoroughly. Most gift policies are worthless in today’s interest market. What this means is that when your mortgage term ends, there may not be enough funds in your endowment policy to pay what you owe to the lender. If this is true, your lender will be knocking on your door this short fall. If you can’t pay, you could lose your home after 25 years or more of payments! I recently read that some Endowment policies had a small drop of up to £ 13,000. If this happens to you, you will owe your lender £ 13k plus interest.
The smartest mortgage you can take is a simple “repayment” mortgage. In addition to repaying the interest to your lender, you are also paying the offset principal, thus reducing the total amount you owe faster. My advice is to speed up your mortgage and pay it off as quickly as possible before interest rates skyrocket and your payment doubles or even triples. When the tide turns (and it will), you will be smiling with the content that you own your home and you own your car and nothing can take this away from you.