Reduce mortgage term with interest rate savings

Posted: 07 Feb 2008 11:49:58 GMT

Mortgage borrowers have been advised that they can reduce the term of their mortgage by taking advantage of a cut to the base rate of interest.

Mortgage borrowers have been advised that they can reduce the term of their mortgage by taking advantage of a cut to the base rate of interest.

It is widely anticipated that the Bank of England's Monetary Policy Committee (MPC) will announce a cut today (February 7th) and further reductions throughout the rest of 2008.

Moneyfacts has pointed out that mortgage borrowers on tracker-rate deals can use the money saved to help pay off their loan sooner.

"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 per cent interest rate cut, back into your mortgage, you can save 15 months off the length of the term, and a total saving of £4454.81," said Julia Harris from the firm.

"If the rate gets cut by more, or cut again later in the year, the savings could be even greater.

"However these savings will only be possible if your mortgage lender allows you to overpay. According to Moneyfacts, 84 per cent of mortgages available today allow overpayments," she continued.

A 0.25 percentage point cut to the base rate would bring it down to 5.25 per cent – its lowest level for just over a year.

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