The Importance of Comparing Overdraft Costs


Many of us will use the overdraft associated with our current account when we need it. We have often had that current account for a very long time, perhaps even since we first started banking. We may have had different reasons for choosing a current account then, perhaps because our parents or friends held an account at that bank or because they had a free gift for opening the account. We may have then just kept the account with no thoughts about what we might use it for in the future. When we need an overdraft we may just use it without thinking about whether this will be costly for us.

Costs of an overdraft

It is important to understand what the costs of an overdraft might be. There are various costs that you might have to pay and they will vary between banks and building societies and they will also change depending on whether you have an authorised or an unauthorised overdraft. An authorised overdraft or agreed overdraft is one that the bank or building society has allowed you to have. They will let you know how much they will allow you to go overdrawn by. An unauthorised overdraft is any amount that you go overdrawn by without agreeing this with the bank or building society. This could be that you have no overdraft with them at all or that you have gone overdrawn more than the agreed amount.

An authorised or arranged overdraft will have certain costs. This will be the interest and possibly fees as well. An unauthorised overdraft will have higher fees and interest. The exact amounts will vary depending on the bank or building society that you are with. This means that if you think that you will be using the overdraft facility then it is important to compare the costs of these between the different banks as you can then pick the one that will be the cheapest for you. It could make a significant difference to how quickly you are able to reply the overdraft.

Other things to consider

It is also worth thinking about other items as well as the cost of the overdraft. Although the cost could be a huge factor for you, there are other things that you should consider as well.

Firstly, it is worth seeing how much of an overdraft you might be able to arrange with the bank. Some might be willing to give you a much larger overdraft facility than others. They also may not give you the advertised amount, it may depend on your credit rating. Ask a few banks to find out how much they might be likely to let you have so that you have an idea as to whether there are any significant differences. This is particularly important if you think that you are likely to be borrowing large amounts of money on your overdraft. The bigger an authorised overdraft you have the better in this case. If you go into an unauthorised overdraft amount then this will cost you a lot more and so it could be worth paying a bit more but having more money available to you at their lower price. It can be tricky to do the maths and also to predict how much you might borrow but you can use your past spending as a guide.

Current accounts also have other features which you might be interested in comparing. Some might charge you a certain amount each month but in return pay you interest, give you free insurance and things like that. These can be great and sometimes it can work out cheaper to do this rather than buying separate insurance. However, if you would not have otherwise have bought the insurance and if the cost of the overdraft is high, then this would not be a wise choice.

You might also be keen on making sure that you use a bank or building society that you trust. You may feel that if you do get into any difficulties you would like the option of being able to discuss it with them. For you this might mean that you would like to go into a branch and chat about it or it might mean that you will contact customer services and discuss it that way. In order to test whether these work to your satisfaction it can be wise to get in touch with them before opening the account and see how happy you are with the way that they respond to your queries.

So, although cost is a very important factor with an overdraft, there are other things that you should be taking into consideration as well. It is important to make sure that you are open minded and think about what you are looking for in an overdraft as well as what is being offered so that you can make sure that you get what you need.

Is it Better to get a Mortgage When House Prices are Low?


Many of us like the idea of owning our own homes but it can be difficult when the house prices are too high. If house prices drop, then it could be thought that this would be the best time to get a mortgage and buy a home. However, it is worth being cautious as there are both advantages and disadvantages of doing this. So, look into everything before you make your decision.

Disadvantages

If house prices are low, then it is more likely that they will rise in the future rather than fall. However, it is important to be prepared for both options as historically there have been times when house prices have fallen a lot, for a long period of time. If this happens it means that once you buy your home, it can be worth less than you bought it for. This is a lower risk that if prices are high and likely to fall, but it is very hard to predict what prices might do. If the price does end up falling more, then you could end up in negative equity, which means that you will have a higher mortgage than your house is worth and therefore will not be able to easily move, unless you downsize, because when you sell the house you will not be able to repay all of the mortgage.

If house prices are generally low then this is different to an individual area, street or home being low in price. This could mean something else. It could be that the area is not desirable for some reason and it will be good to find out what might be contributing to the low cost of housing in that area. If you know the area well, then you will be in a better position to judge for yourself or you may know local people that may be able to give you more information. If it is a specific home then it could be down to the state of repair that it is in so make sure that you do a detailed survey to check. It may be because it is small or needs updating and these things will be obvious when you visit it. If the house needs immediate work then it can be wise to work out how much this might cost to see whether you think that you will be able to afford it.

Advantages

Obviously buying hen prices are cheap means that you will get more for your money. Most people have a specific budget to spend on a home and if the prices are low then it means that you could potentially get a larger home or one in a more desirable area for the price that you can afford, compared with when houses were dearer. It is worth thinking about whether it might be better to get something below your budget though as it means that you should still be able to get a decent property but you will be able to put down a larger percentage of deposit and borrow less money on your mortgage. This could mean that your repayments will be lower or you will be able to repay it over a shorter time period. It is worth considering as it could save you a lot of money in the long term.

When house prices are lower it is normally because there are a lot of houses available for sale but not many people buying. This means that buyers are in a great position. It means that they not only have a lot of choice, but they might be able to make quite low offers on houses, particularly those that have been on the market for a long time. Buyers might be holding out for a higher price, but there is no harm in making a low offer and seeing if they take it or not. You may be surprised but if they want more money, then you can offer them something higher.

It is also worth noting that house prices do not have an impact on mortgage rates. These rates are based on the Bank of England base rate which is set according to inflation. Although buying and selling of houses has some impact on that, it will not be the only factor. This means that when house prices are low it could be that rates are either high or low. These are something that you should also consider as they will determine the cost of your borrowing. Although rates will fluctuate during the term of your mortgage, it is wise to make sure that you are aware of the rates and how much a mortgage might cost you in monthly repayments so that you are prepared and sure that you can afford it. Consider what you might eb able to afford in the future as well as now.