What are your plans for an increase in interest rates and inflation?

[howtorebuild]

When this financial bubble bursts?

[atticusclaw2]

I think we're in an unusual situation at the moment with interest rates being kept artificially low and prices decreasing for some goods. Having said that, its in everyone's interests to prevent economic collapse and so I can't see the rates suddenly rocketing overnight.

At the same time our personal plan is to pay off our (rather large) mortgage asap. We should be done in less than five years. We are lucky though since we have a high joint income and an interest only mortgage and so we could sustain our mortgage interest rate increasing fourfold if we absolutely had to.

[FreeWorker1]

I have thought about this a lot.

The scenario most likely to play out is a small rise in interest rates beginning with the US Federal Reserve in December followed by the Bank of England. That small rise in rates through will trigger a deep recession which as in fact already begun in Emerging Market countries and China.

This will force the Federal Reserve and other central banks to start a new round of emergency liquidity measures. They tried Quantitative Easing several times over the last 7 years but it didn't work so they will instead instigate negative interest rates (which already are happening in Switzerland). They will also start direct 'helicopter money drops' which means simply printing money and giving it direct to Governments who then spend it on public works, arms and social security programmes.That will cause people to withdraw money from the banks and spend it rather than pay the banks to keep their money (negative interest rates means you pay the bank interest when you make a deposit - its that crazy) or allow hyper inflation to make it worthless.

The central banks will push to hard in trying to save the world economy and create hyperinflation as people suddenly lose confidence in cash money and try to buy anything to use it before it becomes worthless or is confiscated. Think about how that happened in Weimar Germany

The only protection against this is buy real assets like houses, productive farmland, water resources, standing timber, tools, commodities.

[howtorebuild]

What is worrying is the recent Bank of England public consultation, it looks like they have delpeted ideas.

[FreeWorker1]

Real assets are things you can eat, drink, burn, live in, or use to make other things that sustain life.

They are the opposite of financial assets that have no intrinsic value in themselves. You cant eat a bond portfolio or live in a share portfolio. They are just bits of paper or electronic records.

[ThroughThickAndThin01]

I thought Bank of England have said rates are going nowhere until the end of 2016 at the earliest?

[howtorebuild]

Now we have war knocking on the door, plans change.

[ThroughThickAndThin01]

It sounds like we are in a similar position to atticus. We have a ginormous interest only mortgage, although this won't be paid off intil it expires in 11 years. Over the past 5 years we have paid £100,000 off the capital. We are currently overpaying month on month by £1950 which is bringing the mortgage down fairly rapidly. Interest rates would have to go to 6% before it impacts on what we pay monthly, although we would be paying less off the capital with each rate increase.

[atticusclaw2]

I love my interest only mortgage. It goes so much flexibility in the event that circumstances change.

I've actually considered extending it rather than paying it off completely since I know they're like gold dust now.

[zombiesarecoming]

Good to hear it's not just us with a huge interest only mortgage

We are paying off what we can as and when we can and overpaying every month so could take a couple of interest rate rises before things get really tight

[atticusclaw2]

love the way the peppers have interest only mortgages (just in case... )

[atticusclaw2]

preppers

[ThroughThickAndThin01]

good point atticus, we love ours, so much flexibility. It also helps it is such a fantastic rate, 0.48 above base for us.

[ThroughThickAndThin01]

Freeworker your scenario - how long is the timecale it plays out in?

[cozietoesie]

I don't have mortgage issues (circumstances) but I'll be acquiring necessaries for the household while prices are so competitive. I won't be going daft - spare resources will be spent on things which we truly might need and I'll still keep a modest cushion in case of eg some sudden mechanical breakdown - but if we need something and can afford it, I now get it. No point for us in having spare resources sitting around in a bank, especially as interest rates are so low at the moment.

[ClashOfUsernames]

Interesting discussion. We have a repayment mortgage but dh doesn't want to over pay atm .

I do think that the interest rates will remain low for a while so it will be interesting to see how the 'war' will affect things.

In light of the 'war' and dh not wanting to over pay I am investing in things to stockpile that we will use in case the shtf.

[lighteningirl]

We cleared our mortgage when we moved last year previous to that it was interest only (base rate plus 1/2%) so I paid into saving accounts and then cleared a lump sum. We generally prep for financial collapse as that's my dh bugbear. So :
no mortgage
No savings
no debts
rental property (owned outright flame me now but I worked my tail off for it and choose to live in a smaller home to keep it)
Cash reserves
Solar panels
Veg garden
Fruit trees and bushes
Independent work of varied nature ( both do two part time jobs no reliance on any sector)

[NewLife4Me]

I could never see the point in interest only mortgages, why not just pay the mortgage off and then not worry.
Having lived through huge increases in interest rates though, I couldn't sleep at night if we owed more than we could pay back in a hurry.

[ThroughThickAndThin01]

Does anyone have any gold anywhere? It's always recommended, but I'm not convinced of its usefulness overall.

[atticusclaw2]

I could never see the point in interest only mortgages why not just pay the mortgage off and not worry

Erm... because I don't currently have a spare £450k to pay off a mortgage? Possibly?

Interest only mortgages give you ultimate flexibility. If we were strapped for cash next month we would only have to pay the interest and that situation could continue for the next decade in theory (I accept fully that one day it needs repaying). Whereas if we had a repayment mortgage the minute we don't pay the full capital plus interest amount one month the bank would be demanding their money.

[howtorebuild]

I don't see the point of gold or bitcoins, personally.

[ThroughThickAndThin01]

NewLife we have an io because we pay about £325 on an almost £400k mortgage. Therefore we have a big family house, which has a mortgage we are nicely chipping away at as we can afford to overpay currently. If we can't afford it we go back to paying the minimum and have more disposable cash. If it hasn't all gone when it's due in 11 years, our kids will have left home by then, we sell up and buy a smaller house outright. If we've managed to pay it off we have the choice to stay here. I think its a great mortgage, a no brainer for us.

[cupcakelovinggirl]

I think whatever way you twist it and turn it, getting your mortgage paid off as soon as possible is surely the most sensible option. I have interest only and my DH is hell bent on paying off chunks at a time at every opportunity. I think once you own your property you can take a big sigh of relief.

My friend has an interest only mortgage that is huge and will only be paid off once the house is sold and she down sizes - I don't think I could sleep easily knowing that is the only way I could clear my mortgage in the current climate.

[ThroughThickAndThin01]

I agree cupcake, no mortgage is essential for total peace of mind. We have been incredibly lucky in that the low interest rates has facilitated us paying down our mortgage asap. Luck because we had no idea rates would go so ,so and stay so low for so long, although we are sensibly making the most of low rates to get the mortgage down.

I have my fingers crossed that when interest rates start going up, they do very slowly.

[atticusclaw2]

I can't wait to have our mortgage paid off. I am about to pay off a large chunk which will be incredibly satisfying (waiting on DSis to confirm she doesn't need to borrow it for an emergency situation).

[Viviennemary]

We've paid off our mortgage at last. Yay!! I don't really have any plans except to spend a bit more now we don't have the mortgage to pay and get some jobs done on the house. I don't think interest only mortgages are a very good idea but better than renting I suppose.