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The Credit Cruncher was conceived to help you to keep up to date with credit crunch and recession developments, it provides some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Recently, we have begun to look at how BREXIT will affect the UK economy. Please feel free to leave comments where relevant.

10 Aug 2011

Interest rates could stay this low until after 2012

Financial commentators are starting to speculate whether interest rates will move at all next year (2012). This implication being that it could be 2013 before we see any chance in this unprecedented low base rate. The UK has never seen interest rates held at such a low rate, to sustain this rate for the forseeable future is testament to how seriously the BoE take the crisis, it also indicated that the crisis is far from over.
Nett investors will be pulling their hair out - those with a mortgage will be delighted to hear the news. Those with tracker-type mortgages will be able to continue with thier miniscule repayment rates - even those with fixed rates should be able to negotiate a better deal as the long-term prospects start to look more certain. I would urge those who are making good savings to consider making over-payments (after consultation with a financial advisor of course..) to lower the principle amount of the mortgage. This has the effect of lowering repayments in the long term, and is especially important if, like me, you have an endowment mortgage that will not materialise into a pot big enough to pay the mortgage off in full.
I have used the principal of retaing the level of payments that we were paying about three years ago even though the actual interest payment has dropped dramatically. The extra we are paying is reducing the original debt (principal) which is good for two reasons:
It means the amount raised by the endowment will be closer to the actual amount owed
As the principal is being paid off, the amount of interest keeps falling even when the interest rate is steady.
Of course, one has to bear in mind that the endowment itself will grow in a very restricted rate during this time of low interest, but at least by over-paying whatever happens, we will be doing our best to overcome any of the negative effects. One other thing to bear in mind is that when rates eventually climb again, all the overpayer has to do is reduce the overpayment to maintain the same standard of living. The temptation is to spend the 'extra' money released by low interest rates - which will mean an adjustment of spending patterns when the rates come back up - an adjustment I would rather not have to cope with..

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