While student life is thoroughly enjoyable , there are also nagging concerns about money and debt. There are however quite a few things that students can do to improve their financial position. Below are some tips for the money savvy student :
1. Never buy anything expensive from a shop on the High Street.
You will almost certainly find most things cheaper online. Shops on the high street have higher overhead costs (Rent, electricity etc) compared to online stores. Use online price comparison sites like Kelkoo or Pricerunner to search for the best deals. Once you have found a good deal buy it through a cashback website like Rpoints. Rpoints have partnered with a number of retailers (almost all well known High Street stores are listed on their website).
2. Get the cheapest loans possible - The Government backed , Student Loans Company, provides cheap long term loan. Also make sure you open an account with the Bank that provides the biggest and longest zero percent overdraft facility.
3. Get a job - this can ease the financial burden substantially. You would need to ensure you strike the right balance between work and study.
4. Reclaim overpaid tax
If you take up a job, your tax and National Insurance will be paid automatically, out of your wages, before you even receive them. This is known as PAYE (Pay As You Earn).
If you are earning less than the Personal Allowance for the tax year and you work only during holiday periods, you don't need to pay tax. You must ask your employer for a P38(S) form and fill in the declaration on the form as soon as you begin working and you will be paid tax free. You will need a new P38(S) form for each tax year.
Personal Allowance for 2008-09: £6,035
Personal Allowance for 2009-10: £6,475
If you work outside your holiday period as well , then tax will be deducted through the normal PAYE procedure. However if you haven't earned more than the Personal Allowance in that tax year, contact the tax office at the end of the tax year for a refund of overpaid tax.
5. If you are renting , ensure you get council tax exemptions that you as a student are entitled to.
6. Learn to cook. Make your own lunch - it will be a lot cheaper than the college canteen and more healthier. Cooking is an important life skill.
7. Pay a lot less for the books:
At http://www.sellstudentstuff.com/ - You can buy and sell used textbooks, find student accommodation and trade laptops. You can also buy/sell second hand books at ebay or Amazon.
8. Look for discount vouchers and special offers at http://www.studentbeans.com/. Also the NUS Extra card could save you money at a number of retailers.
9. Save on travel in Britain by using a railcard.
10. If you are young , then let the miracle of compound interest work for you. The earlier you start the better , as there is more time for compound interest to work its magic on your savings.
To illustrate, if you started saving £100 a month from age 20 to 60 (i.e for 40 years) and you got an interest rate of 5%, at the end of 40 years, you would have about £152000. You will have put in only £ 48000 in all (=100x12x40).
But if you started saving £150 a month from age 30 to 60 (i.e for 30 years), you will have put in £54000 in all. But at the same interest rate (5%), you will have only about £125000, at age 60 (even though you paid in £ 6000 more than in the first illustration).
Jay
Saturday 7 February 2009
Sunday 1 February 2009
Zero Pence A Month Mortgage
In 2007, Cheltenham & Gloucester sold a tracker product which charged Bank Of England rate minus 1.01 percent. So when the interest rates go to 1 percent (which it almost certainly will go to in early 2009), they will be left with a mortgage where the borrowers would need to pay nothing on an interest only mortgage. C&G apparently have a floor of zero percent.
As per an article in the timesonline, because C&G's computer systems cannot cope with zero rates, it would be temporarily charging 0.001 percent (on the BOE minus 1.01% mortgage) if base rate is cut to 1 percent - that would translate to about 8.33 pence a month on a 100K interest only mortgage. This overcharge , would of course , be refunded back to the borrowers later !!!
Some lenders have a collar on their mortgage products which will set a floor on the rates - i.e the rates will not fall below a certain level even if the BOE rate goes all the way to zero. For those mortgages that do not have such a collar on a base rate minus tracker , it will be interesting to see if lenders will be obliged to pay money to the borrowers when the base rate goes to zero !
Jay
As per an article in the timesonline, because C&G's computer systems cannot cope with zero rates, it would be temporarily charging 0.001 percent (on the BOE minus 1.01% mortgage) if base rate is cut to 1 percent - that would translate to about 8.33 pence a month on a 100K interest only mortgage. This overcharge , would of course , be refunded back to the borrowers later !!!
Some lenders have a collar on their mortgage products which will set a floor on the rates - i.e the rates will not fall below a certain level even if the BOE rate goes all the way to zero. For those mortgages that do not have such a collar on a base rate minus tracker , it will be interesting to see if lenders will be obliged to pay money to the borrowers when the base rate goes to zero !
Jay
Monday 26 January 2009
How To Tame The Mortgage Beast
Buffeted by a barrage of bad news , it becomes quite difficult to see the opportunities that are out there, waiting to be discovered. Granted we are in the midst of the worst financial crisis in living memory, millions are losing their jobs , millions are losing their homes ... But those homeowners, who have managed to hold on to their jobs, have been presented with a historic window of opportunity to do themselves and their families some long term good ... i.e lighten the burden imposed by the mortgage monster... substantially!!
First we need to indulge in some myth-busting. Have you heard people say that interest payments in a repayment mortgage tend to be front loaded - i.e you pay interest before you start paying off the capital - so, even after a few years of repaying the mortgage, you still owe the bank almost as much as you did, when you took on the mortgage. My mortgage advisor told me this : "Even after 6-7 years of repayment , you will have paid back very little of the outstanding loan, because interest payments are front loaded." I did some research on the subject and found that she was wrong !!! Yes the professionals are not always right. The mathematics of mortgage repayment is structured in such a way , that you repay very little capital in the first few years , when the interest rates are very high and only when the interest rates are very high. What is described as front loading only happens in times when interest rates are high. It happened when the Tories were in power and people discovered 'front loading' , many were scarred for life when they saw they had repaid very little capital even after years of repayment.... and the term 'Front Loading' stuck in the minds of a generation. But in this era of low interest rates 'front loading' as it is understood , does not happen.
To illustrate the effect of interest on capital repayment , consider the following :
Someone on a repayment mortgage, with an interest rate of 10%, will have repaid less than 1% of the outstanding loan , after one year . If the interest rate were 5%, they will have repaid more than 2% of the loan after one year. If the rate were 2%, they will have repaid more than 3% after one year. If the BOE rate goes to zero , the lucky chaps on the Woolwich's BBR+0.19% tracker mortgage (of the repayment variety) , will have repaid more than 3.9% of the loan after year one !!!
Consider the fact that the Bank Of England's interest rate is at a historic low , consider also the mathematics of mortgage repayments and you will see what I am getting at. For purposes of illustration let us consider a homeowner on a 100k , repayment tracker mortgage at BOE+0.99%. After one year, she would have paid back 2.9% of the original loan (£2920). BOE rate was 5.75 not very long ago , it is now 1.5% - so from peak to trough her monthly mortgage amount would have gone down by at least £240. So that means she would need to pay £2880 less per annum now. If our homeowner uses this extra cash, £2880, to repay capital, by the end of the year she would have repaid £5800 (=2920+2880). So at the end of year one, she only owes £94200. If she repeats this process again year after year, she will find that the amount owed starts going down dramatically and she can be mortgage free at least 10 years earlier than originally planned. This ,of course , assuming interest rates don't go up. In the near term, they are more likely to go down than up. But even if they do go up after some time, as they inevitably will, with all the extra payments made, our homeowner would still owe a lot less and be better placed to weather future financial storms. Alternatively, she could squirrel away the £ 2880 saved per annum into a high interest savings account (net rate needs to be higher than the mortgage rate). If the mortgage rates go up she could use this cash pile to make lumpsum capital repayments , thereby reducing the outstanding loan and the monthly mortgage amount.
In a nutshell , chip away at your mortgage as usual , with the normal monthly repayments. Save the extra cash freed up due to low interest rates and use them to make lumpsum repayments of capital. Slowly, but surely you begin to take the edge off your mortgage and before you realize it , you will have rendered the mortgage beast toothless - powerless to do lasting damage to your financial well being. An unfortunate set of circumstances have conspired with human greed, folly & fear and have brought us to this point. This has now resulted in the lowest rates in 300 years. All you need to do is sieze this opportunity and slay the mortgage beast or tame it at the very least !!!
Jay
First we need to indulge in some myth-busting. Have you heard people say that interest payments in a repayment mortgage tend to be front loaded - i.e you pay interest before you start paying off the capital - so, even after a few years of repaying the mortgage, you still owe the bank almost as much as you did, when you took on the mortgage. My mortgage advisor told me this : "Even after 6-7 years of repayment , you will have paid back very little of the outstanding loan, because interest payments are front loaded." I did some research on the subject and found that she was wrong !!! Yes the professionals are not always right. The mathematics of mortgage repayment is structured in such a way , that you repay very little capital in the first few years , when the interest rates are very high and only when the interest rates are very high. What is described as front loading only happens in times when interest rates are high. It happened when the Tories were in power and people discovered 'front loading' , many were scarred for life when they saw they had repaid very little capital even after years of repayment.... and the term 'Front Loading' stuck in the minds of a generation. But in this era of low interest rates 'front loading' as it is understood , does not happen.
To illustrate the effect of interest on capital repayment , consider the following :
Someone on a repayment mortgage, with an interest rate of 10%, will have repaid less than 1% of the outstanding loan , after one year . If the interest rate were 5%, they will have repaid more than 2% of the loan after one year. If the rate were 2%, they will have repaid more than 3% after one year. If the BOE rate goes to zero , the lucky chaps on the Woolwich's BBR+0.19% tracker mortgage (of the repayment variety) , will have repaid more than 3.9% of the loan after year one !!!
Consider the fact that the Bank Of England's interest rate is at a historic low , consider also the mathematics of mortgage repayments and you will see what I am getting at. For purposes of illustration let us consider a homeowner on a 100k , repayment tracker mortgage at BOE+0.99%. After one year, she would have paid back 2.9% of the original loan (£2920). BOE rate was 5.75 not very long ago , it is now 1.5% - so from peak to trough her monthly mortgage amount would have gone down by at least £240. So that means she would need to pay £2880 less per annum now. If our homeowner uses this extra cash, £2880, to repay capital, by the end of the year she would have repaid £5800 (=2920+2880). So at the end of year one, she only owes £94200. If she repeats this process again year after year, she will find that the amount owed starts going down dramatically and she can be mortgage free at least 10 years earlier than originally planned. This ,of course , assuming interest rates don't go up. In the near term, they are more likely to go down than up. But even if they do go up after some time, as they inevitably will, with all the extra payments made, our homeowner would still owe a lot less and be better placed to weather future financial storms. Alternatively, she could squirrel away the £ 2880 saved per annum into a high interest savings account (net rate needs to be higher than the mortgage rate). If the mortgage rates go up she could use this cash pile to make lumpsum capital repayments , thereby reducing the outstanding loan and the monthly mortgage amount.
In a nutshell , chip away at your mortgage as usual , with the normal monthly repayments. Save the extra cash freed up due to low interest rates and use them to make lumpsum repayments of capital. Slowly, but surely you begin to take the edge off your mortgage and before you realize it , you will have rendered the mortgage beast toothless - powerless to do lasting damage to your financial well being. An unfortunate set of circumstances have conspired with human greed, folly & fear and have brought us to this point. This has now resulted in the lowest rates in 300 years. All you need to do is sieze this opportunity and slay the mortgage beast or tame it at the very least !!!
Jay
Sunday 25 January 2009
One Silver Lining For Homeowners
Amidst all the doom and gloom in the housing market, there is one silver lining - the dramatic reduction in monthly repayments on tracker mortgages.
With interest rates in the UK heading towards zero, many homeowners with tracker mortgages have benefited to the tune of hundreds of pounds per month. I was pleased to see that my repayments were down by more than 200 pounds per month , compared to the days when the BOE rate was 5.75%. But there are others who are more luckier - consider homeowners who got on to Woolwich's BBR+0.19% tracker mortgage in 2006. On a 100k mortgage, the interest cost per month is only £140.83. If the interest rate goes to zero, their interest cost (0.19%) would be a mere £15.83 per month. Can you imagine , if BOE rate goes to zero, all they would need to pay is £15.83 a month , if they are on an interest only mortgage!!!
Another benefit, which is not widely understood, is the amount of capital that gets repaid in the early years of a repayment mortgage, during low interest rate periods. As the interest cost is low, a greater proportion of the monthly repayment amount goes towards capital repayment. For example, someone on a repayment mortgage, with an interest rate of 10%, will have repaid less than 1% of the outstanding loan , after one year. If the interest rate were 5%, they will have repaid more than 2% of the loan after one year. If the rate were 2%, they will have repaid more than 3% after one year. If the BOE rate goes to zero , the lucky chaps on the Woolwich's BBR+0.19% tracker mortgage (of the repayment variety) , will have repaid more than 3.9% of the loan after year one.
If homeowners take advantage of the low interest rate period and put the extra disposable income that they now have towards making overpayments on their loan , they could shave years off their mortgage and also save thousands of pounds in the process !!!
As described in an earlier post by me:
If I overpaid on a loan of £100,000 (Interest: 6%, Term : 25 years).
Overpayment: £200 per month
Saved Amount : £41,445.73
Mortgage Term: Reduced by 10 years
Enjoy the low rates while they last and make the most of it !
Jay
With interest rates in the UK heading towards zero, many homeowners with tracker mortgages have benefited to the tune of hundreds of pounds per month. I was pleased to see that my repayments were down by more than 200 pounds per month , compared to the days when the BOE rate was 5.75%. But there are others who are more luckier - consider homeowners who got on to Woolwich's BBR+0.19% tracker mortgage in 2006. On a 100k mortgage, the interest cost per month is only £140.83. If the interest rate goes to zero, their interest cost (0.19%) would be a mere £15.83 per month. Can you imagine , if BOE rate goes to zero, all they would need to pay is £15.83 a month , if they are on an interest only mortgage!!!
Another benefit, which is not widely understood, is the amount of capital that gets repaid in the early years of a repayment mortgage, during low interest rate periods. As the interest cost is low, a greater proportion of the monthly repayment amount goes towards capital repayment. For example, someone on a repayment mortgage, with an interest rate of 10%, will have repaid less than 1% of the outstanding loan , after one year. If the interest rate were 5%, they will have repaid more than 2% of the loan after one year. If the rate were 2%, they will have repaid more than 3% after one year. If the BOE rate goes to zero , the lucky chaps on the Woolwich's BBR+0.19% tracker mortgage (of the repayment variety) , will have repaid more than 3.9% of the loan after year one.
If homeowners take advantage of the low interest rate period and put the extra disposable income that they now have towards making overpayments on their loan , they could shave years off their mortgage and also save thousands of pounds in the process !!!
As described in an earlier post by me:
If I overpaid on a loan of £100,000 (Interest: 6%, Term : 25 years).
Overpayment: £200 per month
Saved Amount : £41,445.73
Mortgage Term: Reduced by 10 years
Enjoy the low rates while they last and make the most of it !
Jay
Sunday 14 September 2008
Switch energy suppliers and save hundreds of £££s
With energy bills spiralling, it makes a lot of sense to shop around and get the best deals available. There are a number of websites that compare gas and electricity costs and help you switch suppliers online . The process takes only a few minutes and could save you a tidy sum. Some of the energy comparison sites even give you cashback if you make the switch through them.
Popular energy comparison sites : http://www.energyhelpline.com/ & http://www.uswitch.com/
Jay
Popular energy comparison sites : http://www.energyhelpline.com/ & http://www.uswitch.com/
Jay
Saturday 13 September 2008
Save thousands on your mortgage cost
The interest cost on a mortgage is quite substantial over the lifetime of the mortgage. However, one can save thousands of pounds in interest by making regular overpayments towards the mortgage. There are a number of calculators online that will tell you, how much you can save, by making these overpayments. I found a handy calculator at : http://www.whatmortgage.co.uk/calculators/fleximortgage.html
I have used this calculator to calculate the savings I would make, if I overpaid on a loan of £100,000 (Interest: 6%, Term : 25 years).
Overpayment: £50 per month
Saved Amount : £16,010.74
Mortgage Term: Reduced by 3.7 years
Overpayment: £100 per month
Saved Amount : £27039.37
Mortgage Term: Reduced by 6.4 years
Overpayment: £200 per month
Saved Amount : £41,445.73
Mortgage Term: Reduced by 10 years
Many mortgages allow overpayments - simply making small regular overpayments can shave thousands of pounds off the mortgage cost and reduce the mortgage term by a few years as demonstrated above. Given time and a little financial discipline, the mortgage beast can be slayed !!!
Wishing you all a happy , mortgage free life.
Jay
I have used this calculator to calculate the savings I would make, if I overpaid on a loan of £100,000 (Interest: 6%, Term : 25 years).
Overpayment: £50 per month
Saved Amount : £16,010.74
Mortgage Term: Reduced by 3.7 years
Overpayment: £100 per month
Saved Amount : £27039.37
Mortgage Term: Reduced by 6.4 years
Overpayment: £200 per month
Saved Amount : £41,445.73
Mortgage Term: Reduced by 10 years
Many mortgages allow overpayments - simply making small regular overpayments can shave thousands of pounds off the mortgage cost and reduce the mortgage term by a few years as demonstrated above. Given time and a little financial discipline, the mortgage beast can be slayed !!!
Wishing you all a happy , mortgage free life.
Jay
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