What is the truth behind your finances?
Between 15-20% of people in our country (UK) own their own businesses. This statistic is on the rise thanks to the incredible invention of the Internet. The staggering truth is that of these, only 5% are genuinely financially free! You may see many expensive cars on our roads and large houses inhabited by seemingly wealthy people, but these houses and cars are not yet paid for.
Never in our history has it been so easy to lend money. Banks and building societies are falling apart to lend us money. You can sign your life to 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 excellent.
Credit card companies also love today’s economy. Today, you can borrow enough money with a credit card to buy a new car! Loan companies are also taking advantage of ignorant and naive people and this really worries me. The advertising market is going crazy with media ads for consolidation loans. Do you know the guy? “We’ll help you consolidate all of your existing loans into one affordable monthly payment” They call this type of loan a HOMEOWNERS loan. Yes, you can consolidate all your existing debts into one affordable monthly loan, but what do you call affordable? People are consolidating their current debts into one huge debt and lending the money to pay off this new debt. Paying off this debt in full will take these people years. What’s more, they have secured this loan on 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 current and immediate situation. Meanwhile, what happens when interest rates start to rise? The interest rates on a consolidation loan will take years to pay off, and as long as you owe your lender money, you’re not at all safe because your consolidation loan is secured on your home.
What does this mean?
If you can’t pay your loan, the Loan Company WILL TAKE YOUR HOUSE as payment!
The reason it’s so easy to lend money these days is because interest rates are so low. At the time of writing this web page, our current government has set the base lending rate so low that people are dangerously indebted due to their own ignorance of economics. What is really happening will become very apparent in the next few years, when the tide turns and interest rates start 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 the global business markets and all those people who borrowed huge amounts of money to buy their big house and their BMW or Mercedes will be in big financial trouble.
Wait, it gets worse!
SHOCK HORROR!
Once the tide turns, interest rates will take a hit, and if you’re not sure, your financial world will come crashing down. The mistake people have made is foolishly believing that their loan rates will stay the same, they won’t. Let me explain in simple terms my theory by giving you a simple example:
If you have a current ‘interest only’ mortgage of, say, £100k and the interest rate applied 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 payment. If your salary does not allow enough funds to meet these demands, you will slowly and painfully lose everything. When interest rates start to rise (and they will), debt consolidation companies will collect for 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 the clothes you’re wearing to meet their demands.
SO WHAT IS THE ANSWER?
My advice to you is to pay off your existing debts as quickly as possible. If you drive a car financed by a finance company, pay off this loan as quickly 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 settle your finances early, take advantage of this and settle immediately. This way, you’ll own your car, pay less interest, and have some equity if you need it. If you can’t afford to pay off the finances right now, check what interest rate you’re 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 to fall 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. Rather than settle for more money in your pocket and still put up with a 10-year loan term (or whatever), why not use this extra money to increase your loan principal?
This simple technique is called ‘Mortgage Acceleration’ Banks and Building Societies know all about Mortgage Acceleration, they just don’t mention it because it makes them lose a lot of money in interest payments.
If you increase your mortgage principal payments each month, you are paying off the entire loan faster. If you can cut 2 years off your loan, you will not only have shortened your mortgage by 2 years, but you will have saved a package of interest. A £50k 25 year mortgage paid off 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 out your loan payments thinking you’re saving money, you’re not. You’re just spreading your debt! You should pay off this loan as quickly as possible while interest rates are low. The longer you take to pay your mortgage, the higher the interest rate the Bank or the Mortgage Credit Company will charge you. While the interest rate is currently around 5%, speed up 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 on top of 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 to speed up your loan and pay it off sooner, I highly recommend that you start your financial organization here and get this organized today. A simple £50 per month increase in mortgage payments will save you money on interest payments in the long run. Your first step in taking control of your financial world is to pay off all of your existing debt as quickly as possible. When you are debt-free, you will be financially free and feel as if a great weight has been lifted from your shoulders.
POSITIVE ACTION PLAN:
Contact the bank or mortgage company with which you have your mortgage. Request a final payoff figure on your mortgage and also find out the current interest rate you’re paying. Chances are, if you haven’t checked the interest rate you’re currently paying in the last 12 months, you could save money right away by choosing a better deal. There are now many lenders willing to offer you competitive offers on your mortgage and I advise you to check them all out before committing to one. A simple 1% savings on interest can save you pounds every month. With this savings on interest payments, use this extra money to increase your principal payments. If you only manage to cut one year off the length of your mortgage, that will be one year less debt and one year before you become financially independent.
Speaking of your mortgage, if you currently have an endowment policy along with your mortgage, please investigate this policy thoroughly. Most endowment policies are useless in today’s interest market. What this means is that when your mortgage term ends there may be insufficient funds in your endowment policy to pay what you owe the lender. If this is true, your lender will be knocking on your door for this short time. 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 £13000! If this happens to you, you will owe your lender £13k plus interest!
The smartest mortgage you can take is a direct ‘refund’ mortgage. In addition to repaying the interest to your lender, you’re also paying off the principal, thereby reducing the total amount you owe faster. My advice is to speed up your mortgage and pay it off as soon as possible before interest rates skyrocket and your payment doubles or even triples. When the tide turns (and it will), you’ll be smiling because you own your house and your car and nothing can take them away from you.