Making Cents: Your finance questioned answered

Question
Liam, I’ve three insurance policies and I’ve no idea whether I need them or not. Combined, they’re costing me €126 each month. Things have become tight each month and I’m looking at ways I can cut back my outgoings and I was wondering whether I can lower the cost of these policies or not. I probably can’t but I thought I’d ask anyway.

The above was part of a much longer email I received from this reader and my response to her was:

Answer
I’m glad you got in contact because you can lower them significantly and let me tell you why.

The first policy you have is an income replacement policy where you are paying €65 per month.

And you took this policy out before you joined your current employer and you were right to, because you needed to protect your income in the event of you being unable to work due to an accident or illness. However, your current employer has a group income protection policy for its employees which means in the event of you being unable to work, it will replace two thirds of your salary, less any state illness benefit you’d be entitled to.

So, you don’t need that income protection policy you took out four years ago have because if you can’t work, it won’t pay out anything because of the cover you have in place with your current employer. You are paying a premium for something that won’t pay out anything as long as you remain with your current employer and you’re part of their group scheme.

The second policy you have is assigned to your mortgage and you’re paying €39 per month but all you need to be paying is €15. You have completely the wrong type of policy which is why you’re overpaying by so much. You need a basic decreasing mortgage protection policy, which decreases in line with your mortgage balance. In instances like this, I always tell my clients keep it simple and keep the premium as low as possible.

The third policy you have is a separate life assurance policy in the amount of €125,000 where you’re paying €22 per month. You said you have no idea why you have this policy in place and I don’t know why you have either.

You did mention that the bank sold it to you when you were arranging your house insurance with them. You went in for home insurance advice and came out with two life assurance policies.

Anyway, the purpose of a life assurance policy is to financially protect those left behind in the event of your death. And your next of kin are your parents who are not financially dependent on you. They’d inherit your house which would be paid off from your mortgage protection policy and they’d also be in receipt of the death in service benefit your current employer provides which is four time’s your current gross salary.

So, in the event of your death, your parents would receive a property which would have no mortgage and a lump sum from your employer in the amount of €180,000. I don’t think they need anymore and I don’t think they’d want you paying a premium each month for a life policy for their benefit especially if they knew you were finding things difficult each month.
My advice, therefore, is to cancel this policy knowing that if you did, everyone left behind would be fine.

You had three policies which were costing €65 + €39 + €22 each month and if you follow through with my advice, they’ll now cost €0 + €15 + €0. And I’m hoping what I’ve outlined will give you the peace of mind knowing that you can cancel two of them and amend one of them and know you are doing the right thing if you do.

Question
Liam, I’m 60 years old and know very little about the workings of the stock market. I take a little notice of it because it impacts my pension, but at a very basic level can you tell me what makes it go up and down?

Answer
Your question is an excellent one the stock market is primarily influenced by one thing, and that is the future earnings and profits of individual companies listed on a particular stock exchange.

So, if a company makes more money, their share price becomes more valuable and it increases in value, and it makes less, it will go down in value.

And there are many outside factors that influence what the future earnings of companies is going to be i.e. consumer confidence, interest rates, commodity prices, relations between the US and China, the war in Ukraine, unemployment, countries debt levels etc.

When you add all of these into the mix, they can effect a company’s future earnings both good and bad.

And the market doesn’t care about what a company did last year or the year before, they only care about what they’ll make in the future.

So, if a stock market drops in value, it’s because investors believe the future earnings of the companies listed as a whole will get worse and if it goes up, its’ because investors believe the economic climate is changing in such a way that it will facilitate a company becoming more profitable in the future.

Question
Hi Liam, I have a mortgage in the amount of €200,000 and there is 20 years left on the term. The value of my property is about €450,000. I’m currently on a variable rate of 3.5% and I’m thinking I could get a lower rate either with my existing lender or with another. I don’t really want to go to the trouble of moving lenders, so is it possible to get a lower variable rate?

Answer
Yes, I think you can.

Banks reward borrowers who have low loan to values, and whilst you may have started off with a loan to value of 80% or more, over time with monthly repayments reducing the amount you owe together with the property increasing in value, your loan to value will have decreased as it appears yours has.

It looks like the rate your lender is charging you is based on a loan to value >80% but they have a rate of 3.1% where the loan to value is <50%. That differential is .40% lower than what you’re currently paying and in monetary terms, the difference is about €40 per month.

So, how do you move forward and get this lower rate?

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It’s not that difficult or time consuming. You have to request a mortgage amendment form from your lender and on this form you are given a number of options to choose from i.e. fixed rates between one and 10 years and some variable rates. Alongside each option you have to tick a box confirming which loan to value you fall under.

And in your instance you will tick the <50% LTV box.

You have to prove that you fall under this % by getting a valuation carried out on your property and you are responsible for the cost of this (will probably be somewhere between €150 and €200) and the inspection and subsequent report has to be carried out by a valuer who is on your lenders approved panel of valuers (they will tell you who is on the list).#

Once you have that, attach it to the signed amendment form and return it to your lender and you are then good to go and the lower rate should be applied to your account within a short period of time.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie