The credit crisis of 2007 and subsequent Euro zone debt crisis have well and truly rocked the global economy. As we enter 2012 fears over government debts reign and global economic growth has crashed.

In order to try to stimulate growth governments around the world have responded by slashing interest rates. These lower interest rates are painful for investors as it means holding cash in deposit accounts or bond investing currently yields a minimal amount of interest. Combine this low return environment with inflation and in most parts of Europe and the US you are losing money in real terms by saving in cash. The interest your savings earn is less than the rate of inflation.

The above phenomenon means that if you’ve got spare cash you’ll need to look a little harder to find decent investments that will not just hold the value of your money but hopefully add to it. Below we’ll take a look at some options

The Stock Market

Stock markets around the world took a pounding in 2011. With the Euro Crisis looking far from resolved there will almost certainly be choppy times ahead for stock markets in 2012, which initially might scare you off. However, stock markets haven’t been on a one way nose dive- there has been massive volatility meaning the markets are making more frequent and dramatic short term moves, both up and down, all be it with an over riding downward trend.

This increased volatility presents a good opportunity to make money for canny investors. By choosing the right stocks, big gains can be made as we discussed in our recent article 3 stocks to invest in for 2012. In choppy time you need to narrow your focus on reliable steady performers. A couple of areas to consider are companies that traditionally benefit from a downturn – think pawn brokers, pound shops or regular steady cash cows like utility companies.

Gold

In turbulent financial times gold is traditionally the place where the money goes – pushing it’s price up in the process. When stocks fall usually gold is seen as a safe haven. This effect has increased in recent years as institutional money no longer sees government bonds as equally safe.

Despite the above we must remember that Gold is near it highest ever price. Is there room to rally further? Well if you think we are headed for even more financial turmoil having some exposure to Gold could be a very good play indeed.

The counter argument to the above may go like this……in a big financial crisis scenario (big meltdown of the EURO resulting in widespread defaults of financial institutions) many big financial institutions would be forced to liquidate some of their assets very quickly indeed. The quickest and easiest way they could do this would be to sell gold, which could force prices lower still. Would this effect be enough to pull the price down or would the ’safe haven’ aspect outweigh it? You decide.

Oil

With Iran flexing it’s military muscle, oil prices are looking nervous. A serious escalation in the Iran situation could easily push up oil prices to over $150 per barrel in a very short time indeed.

At the same time a serious collapse of the EURO could bring oil prices down to $75 per barrel on fears of a sustained and deeper global recession than feared. Personally i think having some exposure to oil is a good thing. Even if prices fell to $75 per barrel I don’t think it would be long before some other political/environmental crisis sent them over $100 again.

Property

Global property crashes have meant it is much harder to get mortgages these days, banks simply can’t afford to take the risks of lending to Joe Public. As a result the cost of borrowing is much higher than it used to be, resulting in property prices remain low.

If you have a large lump sum, you’ll get a much cheaper mortgage thanks to your bigger deposit.It’s a buyers market in 2012 with lots of properties for sale and many people opting to rent as they can’t get the finance to buy. If you can afford it it, is a great time to enter the buy to let market.

Take a Break

No matter where you invest make sure you take advantage of tax breaks. If you’re in the UK be sure to invest via an ISA to ensure any profits are tax free. Most ISA accounts allow you to buy individual stocks or even funds and ETFs linked to assets like gold and oil meaning you can access most asset classes through an ISA.

By using tax efficient vehicles like ISAs to invest you’ll ensure you keep as much if not all of any hard earned profits. It’s worth remembering that you can still hold cash in your ISA account so even if you’re not ready to invest it all at year end make sure you subscribe the full amount before the end of the tax year to avoid missing out on the tax breaks.

Manage Your Risk

In turbulent markets it can be harder to find a profit. With increased volatility a small paper loss an soon blow up to be a seriously big problem. Be sure to manage your positions and if they don’t work out don’t be afraid to get out and take a loss. No trader gets it right every time so don’t expect yourself too.

Overpay Your Mortgage

Ok, it’s not an investment in the tradition sense but if you’re struggling to find investments then over paying your mortgage can be hugely beneficial in the long run. You can easily save thousands over the term of your mortgage and end up debt free many years earlier than scheduled.

Overpaying is particularly effective if you’re stuck on a higher interest rate that you can’t refinance. If this is the case then you’re probably better off overpaying than investing elsewhere.

Overpaying your mortgage is a great way to not only save thousands but also to help you become mortgage free years before your current mortgage payment schedule aims for. Here we look at some of the things to consider if you’re thinking about starting to over pay your mortgage.

Consistency is key

Unless you’re earning big, big money paying off a mortgage is a long process. By overpaying your mortgage you can save thousands as well as significantly reducing the time it take to pay off your loan. However you’re still going to need a bit of patience. Reaping the benefits of over payments is a gradual process that will take a period of months to years to benefit you.  Be prepared to be consistent with your efforts to overpay.

Redemption Penalties

Many mortgages have what they call redemption penalties which are subtly different from repayment penalties. Check with your mortgage provider but they usually mean you’ll be charged a fee if you repay all of your mortgage loan within a specified time frame. You’ll be charged this fee whether you are remortgaging to a different provider or paying off your loan in full and going mortgage free.

Mortgage Overpayments

image by woodleywonderworks

For this reason it may be worth not repaying your mortgage completely If you’ve been overpaying and are nearly mortgage fee it may be worth leaving a small balance (a single pound or dollar will do) to avoid these repayment charges.

Repayment Penalties

Many mortgages have a restrictions on how much you can overpay each year. A common figure is 10% of the outstanding balance. Overpay more than this in a year and you may have additional fees to pay. Be sure to check the details of your mortgage agreement before embarking on over payments.

Pay off expensive debts first

Overpaying your mortgage and being mortgage free in a few years time can be an exciting prospect. However before embarking on an over payment spree, in order to maximize the benefit of your money, be sure to pay off more expensive debts first. Debt such as credit cards, store cards, personal loans will almost certainly be charging higher rates of interest than your mortgage. To ensure you get the biggest bang for your buck be sure to pay these off first.

Every little helps

Paying off a 25 year mortgage can be a daunting prospect however you should remember the snaowball effect created by compounded interest. Every payment you make is a combination of interest and capital repayment. The more you can reduce the capital (by overpaying this month) the less interest you’ll be charged next month.

Mortgage Overpayment Table

Making say a £50 overpayment may not seem a lot on a loan of say £100,000 but do it every month and the effects soon add up as you can see in the table below. On a £100,000 loan if you made no over payments you’d pay £75,377 in interest by the time you’d paid the loan off.

If you can manage to overpay £50 each month you’ll end up paying off the mortage 2 and a half years early and save a whopping £7,319 in interest payments. Make the overpayments £200 per month and you’ll have the mortgage paid off nearly 7 and a half years early and save over £20,000 in interest.

Don’t Neglect Savings

You never know wghat is round the corner – the car breaking down, emergency repair at home, expensive medical fees. On most mortgages (the exception being offset loans) once you’ve made an overpayment you won’t be able to take the money back out if you need it for an emergency (home repair, new car etc). As a result you’ll need to be prudent and ensure that you can afford to make over payments.

One way to build a safety net is to ensure you have an emergency savings pot of cash set aside. Don’t neglect your savings regime in order to increase your over payments.

Summary

In this post we’ve covered some things to bear in mind when thinking about over paying your home mortgage loan. Now you’re raring to go take a look at our other mortgage over paying tips to make sure you give yourself the best possible start. Good luck!

I’ve been blogging quite a bit recently about how, why and when to over pay your mortgage. In this post i’ll break down some of the reasons and methods that have helped me reach a stage where I hope to pay off my mortgage within the next 5 years.

I Am On A Tracker Mortgage

Luckily when I decided to re-mortgage my home loan and move away from my then lender Northern Rock shortly after they became one of the first victims of the financial crisis. Interest rates at the time were about 5.5% and I was very close to opting for a fixed rate mortgage deal. At the time however I felt that the Bank of England would reduce interest rates by a quarter of a percentage point in the following quarter so I opted for a tracker mortgage from First Direct.

My current mortgage deal charges interest at the Bank of England base rate (currently 0.5%) plus 0.47%, meaning I am currently paying only 0.97% interest on my mortgage. The net effect of this is that the current monthly repayment amount on my 20 year mortgage is well under half what it was when I took out the loan about 2 years ago, saving me a large amount of money each month.

I Regularly Make Mortgage Over Payments

With all of the savings I am making on my mortgage I could have significantly increased my monthly disposable income. Instead when interest rates began to tumble I instructed my mortgage company to keep my repayments at the same level, effectively making over payments to my mortgage each month. As rates began to fall further the size of my over payments compared to the regular payments began to rise significantly. As a result I am saving myself thousands in the long run without really noticing it in the monthly payments i make.

I Divert All Work Bonuses Into Over Payments

In addition to making regular over payments out of my monthly salary I also divert any financial windfalls into my mortgage account. Most of my work bonuses I have received in the last two years have been used to make one off mortgage over payments. In addition the odd tax refund, ebay sale of junk and any other little windfalls i have received have all gone toward reducing the capital of my mortgage.

I Make Small Sacrifices Everyday

Since embarking on this journey to reduce my mortgage I have paid much more attention to the small amounts of money I used to fritter away on needless expenditure. Below is a list of some of the simple things I have done that save me money on monthly basis. You’ve already guessed it, all of these savings become mortgage over payments.

• Walk or get the bus instead of the odd taxi
• Avoid eating out too much (restrict myself to a couple of times each month)
• Try to take a packed lunch to work instead of buying from cafes (this is a big saver)
• I question all purchases. Do i really need to buy that watch when i have one that works fine?
• I’ve sold huge amounts of junk on ebay, stuff i would never have used again and made a healthy profit doing so

I Make Extra Income Online

This has been another important factor for me in the last year or so. I have a few websites and blogs (including this one) that i have set up over the last couple of years and continue to maintain. This year I have realized the potential of a few of them to make money for me. There are numerous ways to make money online, i have concluded that no way is the right way. I tend to make my money by providing useful content to users on subjects that i am interest in.

I took a couple of online internet marketing courses that helped me learn the basics of internet marketing and now I am being rewarded by seeing my online income steadily grow month on month. I use all of this extra income I am earning to go towards over payments on my mortgage.

I Am Becoming Obsessive About Overpaying My Mortgage

Making mortgage over payments can be likened to a snowball rolling down the hill. The more over payments you make (and sooner you make them) the bigger their impact is. The more you overpay the more you save and the easier it is to see the impact of your over payments each month when that mortgage statement comes through the post. To me this snowball effect is a great motivator to keep over paying more.

Once i saw how £100 per month could save me over £20,000 I started a continually search to find more ways of finding an extra £50 or £100 to put towards overpayments each month. Overpaying your mortgage is definitly one of those things where the more you put in the more you get.