Posts Tagged With: Loan

Money: The Roof over your Head

This is important, but sometimes people either forget, or have never been told, just how to respect the value of their home.

Your home is usually the biggest purchase in your life. A lot of people in Europe get along happily by renting all their lives, but I think that isn’t the norm elsewhere. If you’re into owning your own property, then here are a few thoughts:

  • If you have a mortgaged property, you’re not completely the owner until it’s fully repaid. And, as the small print in UK adverts says, if you don’t keep up repayments, you may lose your property.

  • Therefore, it’s important to make sure you keep up those repayments; it wouldn’t hurt to save up and build a reserve specifically to cover six months repayments, so that in any eventuality, whether losing a job, illness or whatever, you’ll have six months in which to get back on your feet. Let me put that more gently, tactfully: Do it!

  • Saving isn’t always easy, but think about it – if you put away just 10 percent of your (net) income, that doesn’t hurt that much. Maybe not every month, but whenever you can.

    Save your small coins. Get the family to do the same. Make piggy banks out of empty soft drink cans, and all the small coins that you don’t normally use (I’m told some people chuck out their pennies! As an ex-banker, I cringe…). In a years’ time you’ll find that you have a pretty interesting amount of money saved up. I paid for air tickets for wife & me on a holiday, through saving pound coins as well as smaller ones.

  • This next one is really important: don’t take out a second mortgage for anything except to improve or maintain your property. Not for a speedboat, not for a holiday, nor anything. Your mortgage is meant to end while you’re not too old to still enjoy life. Once you’ve retired, you will regret the drain on your income if you still have years to repay a mortgage, and you won’t remember the holiday you used the money on.

  • Another, even bigger, never-never: don’t  ever speculate with your property. Not with the roof over your head. If you have a second, holiday property, fully paid up, repeat fully paid up, that’s different. I’ve seen people using their house as security for a loan to start a business, or to finance stock market investments; sometimes you win, sometimes you don’t. If you don’t, you could lose the wife and family as well as the house…

    A simple gambling rule – don’t play with more than you can afford to lose. Period.

  • Repay that mortgage as soon as possible. If you pay a bit extra each month, you can knock years off your mortgage. A small amount, £10 or £20 helps just fine, especially if the interest rate is high.  If rates are in double figures (it does happen. I’ve seen over 20 percent rates), the effect is much greater. A typical mortgage often allows you to repay about 10 percent extra.

    As a side bonus, this could help if you find yourself strapped for cash at some point, as the bank is likely to let you miss a few months payments as long as you’re within the laid down reduction programme.

  • Here’s an interesting one I never came across until recently; some banks, somewhere in the obligatory small print, allow themselves to attach assets like your mortgaged property to help repay a loan or overdraft if you default. Solution simple – don’t take up a mortgage with the same bank that you use for the rest of your personal and business accounts.

That’s all that comes to mind at the moment. If you have other thoughts that might help other people along, I’d love you to write in. If you have an article in you and you want a home for it, let me know.

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Money 1

I’m still experimenting with the structure here, so please bear with me if you see odd layouts and changes happening now and again.

I want to bring in some tips and advice about money, finance and the like. A lot of it will be from “The Money Book”, one that Sasha and I wrote back in 2003. Having been in banking earlier in my life (N.B: a sensible, ethical banking group, the third biggest in Southern Africa at the time), I think I may have a few tips that help.

In my thirty-one year banking career, I’ve been through droughts, recessions, stock market crashes, financial exhilaration, govt. over-regulation, farming, diamond cutting clients, personal, commercial and corporate finance, and on top of it all, I eventually qualified to head the bank’s internal Credit Audit Division.

Throw in a few years of managing risk and creating M.I.S. for our then fledgling mortgage loan division, I’d covered enough ground by the time I left banking in 1996 to realise, by 2003, that people here were in a pretty risky scenario financially. With personal debt exceeding One Trillion Pounds!! and rising, it wouldn’t take very much to upset the apple cart, had there been a serious enough trigger, and dump us all into the biggest load of manure you’ve ever seen.

So Sasha and I wrote The Money Book. The intention was to give the man / woman in the street some help when in or approaching financial hassles… Speaking from memory, we sold about a dozen copies that year. Less the next year. No one was the least bit interested; when your house is growing in value hand over fist, when the government encourages you to borrow, when saving is discouraged, what else does one do but take out a second / third mortgage to cover that holiday in Florida the family has begged you for. And the speedboat, and the caravan, and so on.

So, here’s the first tip: don’t ever increase your mortgage for any reason except to improve / maintain the property itself. Ok, if in dire straights to survive, that too. But never for holidays, luxuries, or anything else. In fact, one really needs to concentrate on getting the mortgage repaid, the sooner the better.

And tip No. 2: Pay off a bit more than necessary each month. Very often, you can increase your mortgage repayments by 10% each year. Make every effort to try to do this; I know money’s tight as a… a.. darn, not allowed to make jokes any more. Yes, money’s tight for most of us today, but this tip was out there 2003, when it was feasible…

I have to add very clearly, that I don’t believe it’s not all our own fault that so many people didn’t have / don’t have any savings to cushion the hard times. I’m very categoric that the banks, other financial institutions, and government itself, have all played a part in our woes, in a manner that a third-world country like, for instance, South Africa, would never have dreamed of allowing to happen. After all, they are all supposed to know better than us. When you go to the doctor, you expect him to tell you what medicine to take. Not so?

Maybe after I left in the mid-nineties things changed in South Africa, but not earlier. I lost all interest in banking after I left, and in retrospect, I can see that things may have started to go the wrong way at that time, because I was getting more and more fed up with tried and trusted rules falling by the wayside, slowly but surely.

Interesting that, in our book, I felt I had to soften our line somewhat, because a). people just weren’t in the mood to hear a negative/hard attitude – they would have laughed if I’d suggested a depression was possible – the worst I thought I’d get away with was to explain what deflation was, and b). I was totally unaware and never, ever dreamed it even remotely possible that banks could be so incredibly stupid (greedy?) as to break one of the strictest rules in the history of finance – you don’t fund long-term finance (mortgages) on short-term money (overnight / three-month money). Simples! You just don’t do it. Why? Because if you do, you get into the most horrendous funding problems you can imagine. Just ask anyone at Northern Rock…

Right, that’s enough for now, and I hope to keep the wordage down next time, with more tips and less retrospective analysis.

Categories: Money, Uncategorized | Tags: , , , , , , , , , , , | Leave a comment

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