Paying Off Your Mortgage Early – Is It Financially Sensible?

Paying off your mortgage early – is it financially sensible?

Most homeowners dream of paying off their mortgage early and dream of the day they can be mortgage free. The fantasy of being mortgage free is easy to get caught up in. However, it is essential to take some time to think it through and consider if it is the most financially sensible decision long term.

This applies to your mortgage, whether it is for residential properties or buy-to-let. The financial implications of paying off your mortgage early will vary depending on your personal and business circumstances, and therefore, it requires careful and deliberate consideration.

Below we have provided you with questions you can ask yourself should you ever find yourself in this position. It’s a pretty comprehensive list, and it may even help you to think of your own questions depending on your personal situation.

 

Question 1 – What is happening with interest rates?

Current and predicted mortgage rates for the upcoming year will guide you on whether or not it’s the right time to pay it off. This is especially true for the buy-to-let market as there are some excellent fixed interest rate mortgages available at the moment. Interest rates remain low, but how long these rates will be available is hard to predict. It may be more advantageous to spend the money that could pay off your mortgage in further investments for a higher long-term return.

 

Question 2 – What is happening with inflation?

Realistically, what you can buy with £200K now will change drastically in the next twenty years. The longer you can hold onto a property, the more you will make when you decide to sell it. With this in mind, it makes sense to invest in property sooner rather than later to benefit from capital growth. If you rent the property straight away, then this income should cover your mortgage payments, meaning there will be less outlay for you.

 

Question 3 – Can your mortgage be paid off early?

Not all mortgages allow you to pay them off early. Unless stated in your mortgage terms that you intend to settle early, you may incur penalty charges for doing so. Generally, there’s a maximum amount of the loan that can be repaid within a fixed timeframe, usually around 10%. However, it is equally possible to have a mortgage without any repayment restrictions, particularly if you’ve been repaying the mortgage for a long time. We would always recommend checking your mortgage terms before attempting to settle early.

 

Question 4 – Are there smarter investment options?

Leveraging the equity in your property to invest in other properties with a good return is a viable option depending on finance rates. If you’re someone who views owning property as a career, rather than as a consequence of needing somewhere to live, then the cost of borrowing is going to be important to maximise your earnings.

 

Question 5 – What is your reason for settling your mortgage early?

Despite seeming like something to aim for, paying off your mortgage early shouldn’t be seen as the be all and end all. There is a common misconception that paying off your mortgage early will be the most beneficial for your next of kin should anything happen to you. However, most life insurance policies will cover mortgage repayments, which reduces the need to repay early. If the cost of repaying early is going to have a detrimental effect on your personal circumstances, it may not be worth the trade-off. Of course, an early settlement can be beneficial, but try not to get caught up in the notion that it’s a must.

 

Question 6 – Are you close to retirement?

If you are approaching retirement age, it might be worth considering an early repayment of your mortgage as your financial situation is likely to change when you stop working. As we get closer to retirement age, the less you want to have in the way of liabilities, which makes paying things off a much more attractive proposition. On the other hand, have you thought about cash flow from a property portfolio for retirement income?

 

Question 7 – Do you need your capital to be fluid?

When faced with the decision of paying off your mortgage or reinvesting, it is important to consider how you could be affected in a worst-case scenario such as sudden unemployment, serious illness, or unexpected repairs on properties. Repaying the maximum amount allowable could be a better long-term plan than paying off your mortgage entirely as this gives you wiggle room on your mortgage, as you will be ahead of your minimum payments.

 

In Summary 

The purpose of this post is not to tell you what to do one way or another, but to get you to stop and consider all of your options before making a decision. If you decide to go ahead with your mortgage repayments, you should have peace-of-mind that this is the right option for you. If you decide to invest your money in other ways, we hope this has helped you identify how to make your money work harder.

The property market is ever-changing, and life can be unpredictable, so taking the time to re-evaluate the best course of action for you is essential.

If you would like to know how Nichol Smith Investments could make your money work harder for you, book a call with us via the link on our homepage.


Five Ways to Reduce Risk When Investing in Property

Five ways to reduce risk when investing in property

Risk in property investment is always relative to the current economic climate. Before the 2008 financial crisis, property investment wasn’t considered to be particularly risky. However, even with property prices currently on the rise, there are many individuals who would question investing in property in the current market. Your property investment strategy will make a big difference to the amount of risk involved. Even though there will always be an element of risk with any investment, you can mitigate this by adopting a low-risk strategy.

1. Take a long-term view

Throughout your property investment journey, the fluctuation in the property market as well as interest rates will influence your decision making. Despite these variables, it is relatively safe to say that house prices will continue to rise. The cost of property has risen substantially over the last twenty years, and the chances of this continuing are almost guaranteed. Our advice would be to buy smart, invest without overcommitting yourself financially, be prepared for some potentially tricky times, and persevere, you will see good returns.

2.Don’t be hasty

Carrying out thorough research on the area you are investing in is vital to ensure you pay a fair price for the property. In the beginning, it is easy to get excited and make rash decisions which could lead to you overpaying, thus making your investment less profitable. It’s important to remember that for every pound you spend, you will need to recuperate this at the point of selling the property. Researching the area you intend to invest in will stand you in good stead when it comes to agreeing on the initial purchase. This is particularly true for buy-to-let investments as this research will give you an understanding of the current rental demand and how long it typically takes to let a property.

3. Get the right insurance

Making sure you have the right buy-to-let insurance cover will save you a lot of sleepless nights if your tenants stop paying rent or damage your property. Some letting agents will offer to find you the right level of cover as an additional service (for a small fee). Typically, your protection will start when your tenant stops paying rent and will continue until the issue is resolved. However, all insurance policies are different, so it pays to read the fine print to make sure you know exactly what is and isn’t covered.

4. Check your tenants

Make sure you complete background checks your tenants before agreeing to let. Requesting references and having them verified is a crucial step in any buy-to-let investment strategy. It is much more difficult to remove bad tenants, so taking time to go through proper processes and procedures will save you any hassle in the long run. You may also wish to show any potential tenants around the property before entering an agreement as this will give you a chance to get to know the type of people they are. By following these simple steps, you will lower your chances of letting to bad tenants considerably.

5. Make allowances for rate increases

Paying close attention to interest rates is important for budgeting before you buy, which should help you avoid over-committing yourself financially. If you borrow the maximum amount available to you and interest rates go up, you could find yourself with mortgage payments higher than the rent for the are. If long term fixed rate mortgages aren’t available to you, we would always recommend giving yourself some wiggle room to account for potential interest rate changes. 

In summary, there are sometimes things that happen in the property market that are entirely out of your control and they can be stressful. However, some factors are under your control, so avoid costly mistakes by following the advice above. Planning ways to minimise risk for yourself may seem tedious in the beginning, but the long-term benefits far outweigh the extra time it takes. Don’t leave things to chance, do the necessary preparation work, and make sure you set yourself up for the best possible outcome.

If you would like to know more about how Nichol Smith Investments could help you on your property journey, please book a call with us through the link on our homepage.


Avoid the Pitfalls in Property: Discover How a Property Investment Company Can Help You Maximise Profits

Property investment can be a tricky process, with lots of benefits, but also lots of pitfalls to avoid. Unless you really know your stuff, it can be a bit daunting. For this reason, many people turn to property investment companies like Nichol Smith Investments, to help guide them through their journey to becoming a successful investor.

The fact is that most people don’t have the luxury of being able to commit full time to property investment, which leaves precious little time for the extensive legwork that really does need to be done. Property investment companies make it their business to secure their clients with safe investments that provide them with a regular flow of income.

The Advantages:

  • Identify property locations with a good market for rentals or renovations
  • Source below market value properties
  • Access to off-market properties
  • Take care of all paperwork involved in buying & selling a property
  • Use of their extensive team: builders, accountants, lawyers, estate agents and letting agents
  • Extensive experience of the market
  • Reinvest your money to build a portfolio
  • Agreed return on investment for short term or long term investments

The Disadvantages

  • Small fee involved for sourcing below market value properties
  • Not getting hands-on during the renovation process (although many of our client’s see this as a positive)

As you can see there are many advantages of using a Property Investment Company to build your wealth through Property. Nichol Smith Investments offer a guaranteed return on investment to fit your criteria, and we will take care of the rest.

We hope you are excited about the possibilities for growing your wealth. It’s what we are passionate about and we can’t wait to hear how we could help you build your property portfolio. If you would like to know more information about how we can grow your wealth through property, please book a call with us, we’d love to hear from you.


How We Can Grow Your Wealth

Some of you might be thinking ‘HOW can they grow my wealth’. In this article, we will explain how Nichol Smith Investments can grow your wealth.

 

Treat it like a Business.

First of all, we love all things Property. While Investing in Property can be fun it is definitely a business. We put in 100% effort into everything property related, for example, market research, housing trends, and creating professional networks to support our service to build your portfolio. We absolutely do NOT make investments based on emotional factors or because we think a property looks like a good buy. Our Property Sourcing team are fully focused on your investment criteria, and finding properties based on these facts.

Know Our Limits.

We establish early on exactly how much you’re going to need to invest of your own money and have a realistic view of what constitutes ‘overstretching’ yourself. In a modern housing market that requires significant deposits (around 25%) and a host of other legal costs, we will you take everything into consideration at the outset, to ensure no costly mistakes arise.

One Property At a Time.

Identifying a potential property, researching the area and all the things that are involved in a house purchase, requires a lot of time and effort. This is why at the outset at least, we concentrate on acquiring one property at a time.

Buy Low Sell High.

Now, this might seem pretty obvious and of course, you want to sell higher than what you buy property for, but what we’re primarily talking about here is to be aware of market conditions at any given time.  House prices do fluctuate therefore buying below market value will help to protect your investment.

Add Value.

We aim to acquire properties on your behalf at below market value. Often these below market value homes require a degree of renovation, which means not only are we buying properties at below value, we are also adding value. This allows us to gain a significant amount of equity in our homes, and therefore leverage finance to return some money into our savings to move on and buy the next property.

Long Term Compounding.

Although we buy Properties primarily for their cash flow, we can also benefit from compound interest over time. At Nichol Smith Investment, we aim to buy properties that fit our investment criteria and keep them long term to benefit from compound interest. This allows our clients to have positive cash flow from the asset every month, but also sell a property for far higher value from the initial purchase price.

Renovations (Buy to Flip).

Some of our clients prefer to invest money short term in Property for a fixed return on investment. In this instance, we leverage your wealth to buy a property to renovate and sell the property within a fixed time frame to return your money plus interest. This can be used to grow our client’s investment funds or savings.

We hope you are excited about the possibilities for growing your wealth. It’s what we are passionate about and we can’t wait to hear how we could help you build your property portfolio. If you would like to know more information about how we can grow your wealth through property, please book a call with us.


Our Key Principles to Investing in Property

In this article, we are going to give away our top tips for investing in property. The comprehensive list below details our key principles to ensure any property investment is going to be secure and provide great long term returns.

 

Always buy at below market value. This means you’re securing equity at the point of purchase, which helps protect your investment against the market falling. This also means we can recycle your deposit & create infinite ROI (return on investment).

Add value. Increase the value of the property through renovation or extension. We aim to get £3 back for every £1 spent.

Invest for cashflow. We ensure any property purchased for you is cashflow positive after all costs including letting agent fees and buildings insurance (and not just rent vs mortgage payments). A property must produce a good cashflow to allow for essentials repairs and maintenance.

Put 10% aside for unexpected costs. We all know what problems can arise in rental properties… boilers break, washing machines leak, so we always recommend our clients put 10% aside every month into a rainy day fund or a cash buffer.

Buy for Yield/Cashflow, not capital appreciation. Many investors base their entire business model on the capital appreciation and underestimate funding the shortfall in running their property portfolio. This is a very big mistake and a very high-risk strategy to be avoided at all cost. We purchase property on the basis that property prices will never rise, meaning your model is based on instant profitability: income from rent NOT just growth.

Due Diligence (aka doing your homework). At Nichol Smith Investments we carry out thorough due diligence on any property we are considering for our client’s portfolio. This covers due diligence on:

  1. The property: Is it worth as much as it has been valued? How does it compare to other properties sold nearby? How much would it rent for? Get a builders report for renovation costs.
  2. The numbers:  What are the renovation and acquisitions costs? How much will the property be worth once renovated? Do the numbers work as a buy to let property or buy to flip property?
  3. The deal: Fit the deal to a strategy. Be prepared to walk away if it does not fit our agreed criteria.

Invest for the Long Term. The mistake we often see is investors not investing for the long term. If we go by past property cycles, and property prices increasing in value over time, then continually selling your properties reduces your asset base and long term wealth

Buy Existing, older properties. The right type of property can make you thousands every year for the rest of your life.  Existing property older properties are safer to buy because: have established values over a period of years; no immediate depreciation (as you would get with the ‘new car from the forecourt’); limited availability (ie 1000 more not being built down the street); often more robust and less likely to have snagging issues.

Invest in what you know. We buy properties for our own portfolio and our client’s portfolios in local areas where we know property prices, know the market and know we can make good profits. We would not recommend buying overseas (unless you know the area and the market very well), off plan & out of area. These deals tend to carry more risk.

Buying on Emotion. We only buy properties that fit our investment criteria. Do not make the mistake of getting drawn into looking at big, colourful, lifestyle brochures, new build, and dreamy holiday homes. While these places may look nice, we are not investing in properties for their aesthetics.

We hope you have found this article useful in highlighting some important investment principles. We would love to hear from you if you have any questions regarding this article book a call, we’d love to chat.