UK Money News
6th February 2008
'Rate cut offers savings for variable rate mortgage holders'
Homeowners on variable rate mortgages should take advantage of a cut in interest rates tomorrow and move to cut their repayment term, a financial analyst has advised.
Market sentiment suggests that the Bank of England’s monetary policy committee will move to cut interest rates by 0.25 per cent tomorrow in a bid to stimulate the economy.
The move would be good news for borrowers on variable rate deals, especially those with trackers.
However, rather than using the money elsewhere, variable rate mortgage holders would be best off reinvesting the surplus to cut their repayment period, according to Julia Harris, an analyst at Moneyfacts.co.uk.
The firm calculates that by reinvesting the money, a homeowner with a £100,000 mortgage over 25 years could reduce their repayment period by 15 months - equating to a total saving of £4454.81.
However, the savings will not be possible with all mortgage products, and in particular with the 33 mortgage lenders which charge interest on an annual basis.
She said: "Although you can overpay with these, you will be effectively giving the lender up to a years’ worth of your own money as they will only re-calculate your monthly payments once a year.
"If the interest is charged daily or monthly and you overpay every month, you will see the amount you overpaid come off your mortgage as you pay it."
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