Is The Recession Affecting You?

[SwindonTartanArmy]

I got made redundant in October, fortunately, I managed to find a job at the end of the months notice period with BT. only problem is, its temporary and only month by month. just praying that it keeps going at the moment as I am getting married in June and need to pay for that!

[Dazzza]

Tartan, are you with an agency at BT?

I temped briefly at BT years ago and to be honest it was clear from day one that they were never going to ever take on permanent staff in that and they were simply running down the clock on the full-timers and slowly re-structuring everything to different locations.  The four floor building in the centre of Chester I worked in had half a floor left in use.

They had temps who had been there for 10 years that they wouldn’t take on permanently and it was a case of dead mans shoes (if you were lucky)!

One point that may be of use is the agency we worked for had a tiered pay-scale and it’s worth a sniff to see if anyone in your role is on a higher scale and then simply ask your gaffer to shuffle you up.

One thing in BT’s defence is that they’re pretty good if you’re temping there’s always permanent opportunities if you’re willing to re-locate

[Ardiles]

Here's a recession-related conundrum I've been puzzling for the last few days.  I am fairly numerate, but none the less I'm having some difficulty in rationalising the problem below.

Interest rates have fallen from 5% to 1% in recent months, and people fortunate enough to have a tracker mortgage should therefore benefit from a 4% fall in the rate of interest paid to their lender.  A person with a £120,000 tracker mortgage should, therefore, be approx £4,800 better off per annum (or £400 better off per month).

However, using an online mortgage calculator...

http://www.thisismoney.co.uk/loan-repayments-calculator

...a £120,000 borrowing being paid off on a repayment basis over 25 years generates a monthly cost to the borrower of:

£701.51 at 5% interest; and
£452.25 at 1% interest.

The saving to the borrower per month is £249.26.  So is the borrower better off (if you ignore the fact that the value of his house is falling monthly as well) by £249.26 per month, or by £400 per month?  (For the record, I think it's the latter...if repayments are maintained at the original level.)

I know this problem relates to the compounding of interest charges, but I cannot figure out exactly how.  Any ideas?

[RobertT]

Don't forget that not all the monthly payment is interest charges, a fair chunk is repayment of the capital.  Mine has fallen from £792 to about £470 now.

[nevillew]

Not a mortgage expert, but I think it's got to do with the repayment portion, and there's a mismatch in the two figures

1)  at 5% interest (£6000 pa), the monthly £701.51 gives a 'repayment' figure against the principal of £8418-6000 = £2418 per year

2) at 1%  (£1200)  the monthly £452.25   gives £5427-1200 = £4227 per year repayment, an improvement of £1809pa or £150.75.

Theefore, the benefit to the householder is £249.26 reduction in interest, + an increased paydown of mortgage of £150.75, which spookily comes to an overall £400 benefit.

However, as we are frequently told that paying more off your mortgage every month reduces your total interest, the benefit is therefore much better, as the loan will be repaid earlier than the original 25 years.

That's my thoughts Ardiles, There may well be better placed to answer than me though.

[Samdy Gray]

Depends what the amortization schedule is as well.

[Ardiles]

Thanks chaps.  I think that makes a little more sense now.  Definitely a rare silver lining to the recessionary cloud.

[Samdy Gray]

Using Nev's logic, I've just worked out that if rates stay the same for another year and I choose to maintain my monthly payment instead of reducing it, I'll pay off an extra £5,364 of my mortgage in just 12 months.

[nevillew]

Using Nev's logic, I've just worked out that if rates stay the same for another year and I choose to maintain my monthly payment instead of reducing it, I'll pay off an extra £5,364 of my mortgage in just 12 months.

Which will save you interest in the future as well.  "You know it makes sense"  (If your mortgage company will allow you to do it of course - most of them allow 10% overpayment in a year, although some may require a lump sum rather than overpaying on a monthly basis.)

[Samdy Gray]

Mine allow me to overpay by £500 a month and I can set it up as part of my normal monthly payment. Easy peasy.

[ron dodgers]

I overpayed mine whenever I could and managed to get it done 10 years earlier  - it's pyschologically good as well as monetarily spiffing

[Phil_S]

As a not very busy mortgage broker the answer is as follows.
Your mortgage payment (assuming repayment mortgage) is Interest for that month PLUS some of the Capital.
How much of the Capital depends on the term the mortgage has left to run. A reduction in the payments refects the reduction in the interest part. It DOES NOT reduce the term of the mortgage. This will only happen if you make overpayments which you can do with a lot of lenders without penalty. But you need to check out the rules.........  with each lender it's different. Nationwide as mentioned above allow upto £500 per month, but with most it's 10%. Some even specify when any overpayments can be made.

The advantage of overpaying is that it reduces the capital & therfore the interest charged. Which means that more of your payments pays of capital. The effect is compounding. It works best if the lender chrges interest daily or monthly rather than annually.

The other thing to be aware off is that some allow you to draw backn overpayments (Nationwide do) & some don't

[Ardiles]

I hope things pick up for you, Phil.  At least there do seem to be signs the market may be stirring again - albeit off very low levels of activity.

[STFC_Gazza]

Sorry to toot own horn or anything but got some good news in regards to the future of my job today. We are actually hiring 2 new people to start at our place. We are meeting targets (although they are low) and our owners are going to invest some money to do up some of our pubs etc. With other companies dropping like flies, (punch taverns are fucked soon and offered to sell their pubs to their licensees to pay off debts) we are now looking to sensibly invest and try and get a foot up on other people with the right combination of deals etc.

[STFC_Gazza]

Gutted today for all my mates at Vodafone Banbury. Most of the people if not all of them have been told all their work has been outsourced to Conduit in Cardiff or Mumbai and therefore have 3 months notice before clearing their desks and taking redundancy. Gutted for them as known quite a few of them from when I worked up there.