surviving the recession

In my last post, I mentioned that Japan, Germany and France were out of recession. Now it looks like the UK might be out too, judging from the lift in business confidence.

It sounds strange, but households need to prepare for the end of the recession. While the recession has been harsh to those who have lost their jobs, the low interest rates have been great for those still in work. However, with the end of the recession, interest rates will rise again. Mortgages and other debt will again be harder to service. If you have any debt at all, now is the time to take action, to settle credit card debts, overpay your mortgage, sort out your finances.

Just to illustrate the possible shock people will get when interest rates rise - the Bank of England base rate is now 0.5%, with most variable mortgage rates at 2%. If base rates go up to 4% (the norm), then your mortgage interest rate will go to 5.5% if you are on a variable mortgage. That means that if you have a mortgage of £100,000, your interest payments jump from £166.67 per month to £458.33 per month. Can you find the extra £291.66 per month? If not, now is the time to pay that mortgage down, so you won’t be paying so much interest. If the arrangement fees on fixed rate mortgages were more reasonable, getting a fixed rate mortgage would also be a solution. But as it stands, the fees are so high, you end up paying the same as on a variable rate. The only solution is to overpay the mortgage to bring the down debt outstanding.