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Variable borrowers to benefit if Base Rate falls

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07/02/2008
If the Bank of England decides to cut interest rates today (7 February), it will be good news for all borrowers on a variable rate, especially those on a tracker rate mortgage, according to Moneyfacts.

Moneyfacts’ analysis – based on a £100,000 mortgage over 25 years – shows that by simply re-investing the money you have saved through a 0.25% interest rate cut back into your mortgage, you can save 15 months off the length of the term, and a total saving of £4,454. If the rate gets cut by more, or cut again later in the year, the savings could be even greater.

Julia Harris, analyst at Moneyfacts, said: “These savings will only be possible if your mortgage lender allows you to overpay. According to Moneyfacts, 84% of mortgages available today allow overpayments. Just as the possibility of overpaying when rates are dropping is important so is the ability to underpay or take payment holidays when things get tough. Over two-fifths of mortgages are fully flexible in this way.

“There are 33 mortgage lenders charging interest on an annual basis on some or all of their products. 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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