Cameron.. Pay Off Your Credit Cards To Help Economy

[I1L2T3]

But don't 125% mortgages bring us back to sub-prime and...

 

Please don't get me started on house prices and mortgages.

[L00b]

It’s the first thing my kids did when they started working, get a 0% card, run it to max and pay it off before paying interest, then get another. By the time they need a mortgage they will have a better credit rating. Its time schools started financial lessons.

My second mortgage in the UK (at end of a first 3 year-only 'standard repayment' mortage deal) was run like this:

• your mortgage becomes your current account (and the first monthly statement/balance, in the red by your mortgaged capital, really makes your eyes weep )
  
• you get paid at month end into that account
  
• live on your credit card the entire month, and have every single DD etc. coming off your CC account
  
• so your net monthly pay, say X, stays untouched for about a month and reduces you current mortaged capital by X for that month, which reduces the mortgage interest (calculated daily on that mortaged capital minus X) by as much,
  
• pay off the entire CC balance at month end from the current account
  
• the balance left over is taken from the mortaged capital plus monthly interest (which is lower than should be, because calculated on smaller capital during that month)
  
• start again the next month, so on and so forth.
  
• when the balance eventually goes in the black after x years, y months and z days, that's it, mortgage is fully paid off, house is yours
  
• same principle if you inherit/win the lottery/have a windfall etc.: pay enough of that into the account and, as soon as the account is in the black, no early redemption fee, you get your deeds, house is yours.

Virgin started this off and called it the One Account, back in the day (I think). Although ours was with Yorkshire Bank (who were actually pretty spot-on in their advice at the time, and I don't praise banks easy/lightly). By the time when we came to sell (moving country), we'd paid off more from our mortgage in 4 years, than we would have in 12 or more on a 'standard repayment' 20-year model.

 

It really teaches you two things:

(i) how to use a credit card effectively

(ii) how to run a healthy and reasonably tight financial schedule (as a household)

 

Not a product for the faint-hearted or spendaholic, though. If you don't understand money, stay well away. As that type of mortgage has a built-in, monthly-lowering threshold that follows a standard 20 year repayment mortgage, so the faster you repay (according to the above), the bigger the 'gap' between the actual balance and that threshold. Which, effectively, amounts to a permanently-authorised overdraft (the extent of that 'gap'): when the 'gap' gets into serious five-figures, them flash cars, expensive gadgets and big holidays are awfully tempting if you're not disciplined enough.

[I1L2T3]

My second mortgage in the UK (at end of a first 3 year-only 'standard repayment' mortage deal) was run like this:

• your mortgage becomes your current account (and the first monthly statement/balance really makes your eyes weep )
  
• you get paid at month end
  
• live on your credit card the entire month, and have every single DD etc. coming off your CC account
  
• so your net monthly pay, say X, stays untouched for about a month and reduces you current mortaged capital by X for that month, which reduces the mortgage interest (calculated daily on that mortaged capital minus X) by as much,
  
• pay off the entire CC balance at month end from the current account, balance left over is taken from the mortaged capital plus lower interest,
  
• start again the next month, so on and so forth.
  
• when the balance eventually goes in the black after x years, that's it, mortgage is fully paid off, house is yours

Virgin started this off and called it the One Account, back in the day (I think). Although ours was with Yorkshire Bank (who were actually pretty spot-on in their advice at the time, and I don't praise banks easy/lightly). By the time when we came to sell (moving country), we'd paid off more from our mortgage in 4 years, than we would have in 12 or more on a 'standard repayment' 20-year model.

 

It really teaches you two things:

(i) how to use a credit card effectively

(ii) how to run a healthy and reasonably tight financial schedule (as a household)

 

Not a product for the faint-hearted or spendaholic, though. If you don't understand money, stay well away. As that type of mortgage has a built-in, monthly-lowering threshold that follows a standard 20 year repayment mortgage, so the faster you repay (according to the above), the bigger the gap between the actual balance and that threshold. Which, effectively, amounts to a permanently-authorised overdraft: when it gets into serious five-figures, them flash cars, expensive gadgets and big holidays are awfully tempting if you're not disciplined enough.

 

We have very little mortgage left to pay. We could pay it off in cash tomorrow. We keep the mortgage:

 

1. as a debt hedge - if we hit a debt jubilee situation we want a piece of that pie

 

2. If we have a severe emergency we have a serious amount of equity we could leverage under our existing mortgage deal.

 

3. It looks good on a credit report to have a record of being a good payer - remember checks against your credit report are not always made by companies extending you credit

 

4. The interest is only £10 a month now. Which I think is good value for the benefits.

 

If we paid it in tomorrow we'd be completing the mortgage 7 years early. I wish we'd realised how powerful these offset type mortgages were though - we'd have got to this position maybe a couple of years earlier. As it is we are lucky to have an unusually flexible tracker mortgage which we have overpaid on frantically.

[L00b]

2. If we have a severe emergency we have a serious amount of equity we could leverage under our existing mortgage deal.

That's, paradoxically, both a huge advantage and the main danger of offset mortgages (thanks for that, I just couldn't remember the 'generic' name for them ): that 'gap' which I'm on about, is the equity.

 

Which you can leverage instantly, no paperwork/anything, by simply using your Switch card issued on that account.

 

Great in a dire emergency, which needs a ton of cash (we were there, and really luck we had that type of mortgage).

 

Quite good, if you need to finance something big (say, a car), since you can do that at mortgage rate (instad of consumer credit)... and if you're good enough to manage it into the (self-imposed) repayment plan thereafter, of course.

 

But nitroglycerine if you have, or grow, spendaholic/shopaholic tendencies.

 

Makes you think twice about buying that take-away with your Switch, when you don't have readies or another card at hand (about to add a take-away bill to the mortgage)...maybe going home and cooking something isn't such a bad idea after all

[donkey]

Because the papers were full of adverts offering loans that exceeded the value of the security?

 

Surely even the dimmest (‽) of Blair and Brown's little helpers should have smelled something as being not quite right?

 

Short of a world war or the Russians going mad I'm going to stick my neck out here with something of a prediction.

 

• No material change in the next twelve months. +/- 5%
  
• Likely merger of two or more of the larger institutions.
  
• New mortgage products the like of which we have not yet seen.
  
• Steady price growth to be seen again by Easter of 2009.
  

 

Buy Buy Buy.

[Tony]

Yep, did you? With the exception of a wholly unexpectedly paralysed mortgage market, if you had taken my advice in early 2008 you would have been onto a winner on every single point.

 

http://www.communities.gov.uk/documents/statistics/pdf/1637517.pdf

 

I can take a donkey to water, but I can't make it drink.

[Tony]

Here are some more of my thoughts from 2008.

 

http://www.sheffieldforum.co.uk/showthread.php?p=3709930&highlight=value+of+security#post3709930

[upinwath]

I know they probably planned it.

 

But the way things turned is not a great outcome for the global economy as we are now finding. If 99% of people have been screwed over then something most likely went wrong somewhere.

 

But the 1% are doing very well thank you.

People make a fortune from crashes as they did when the pound did the nose dive when that idiot tried to keep us in the ERM.

 

You're still thinking wrong. It went exactly how it was supposed to go.

So a pile of common people lose their shirts - And?

[Cyclone]

Yep, did you? With the exception of a wholly unexpectedly paralysed mortgage market, if you had taken my advice in early 2008 you would have been onto a winner on every single point.

 

http://www.communities.gov.uk/documents/statistics/pdf/1637517.pdf

 

I can take a donkey to water, but I can't make it drink.

 

That's the thing about predictions, the wholly unexpected can make them wrong.

[I1L2T3]

But the 1% are doing very well thank you.

People make a fortune from crashes as they did when the pound did the nose dive when that idiot tried to keep us in the ERM.

 

You're still thinking wrong. It went exactly how it was supposed to go.

So a pile of common people lose their shirts - And?

 

I know what you're saying but I can't believe this was a planned or desirable outcome. Mainly because if masses of people do lose their shirts the people that planned it are not going to be safe. I'm not into conspiracy theories either.