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16 Nov 2019

News

Use yesterday's rate cut to help you to reduce your mortgage term

The Bank of England decides to cut rates yesterday, will be good news for all borrowers on a variable rate, especially those on a tracker rate mortgage.

Julia Harris, analyst at Moneyfacts.co.uk, shows you how re-investing the saving could help to reduce the amount and term left on your mortgage.

Don’t reduce your standing order – reduce your mortgage term and interest bill

“Moneyfacts’ analysis (based on a £100K 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 £4454.81. If the rate gets cut by more, or cut again later in the year, the savings could be even greater.

 

Monthly Saving re-invested

Months term reduced by

£ saved over term

£100K loan

 

 

 

0.25% cut

£14.84

15 months

£4,454.81

0.50% cut

£29.50

27 months

£7,781.49

£200K loan

 

 

 

0.25% cut

£29.67

15 months

£8,906.81

0.50% cut

£58.99

27 months

£15,560.63

Overpayments and underpayments

“However these savings will only be possible if your mortgage lender allows you to overpay. According to Moneyfacts.co.uk 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. 42 % of mortgages are fully flexible in this way.

Beware of annual interest

“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.”

 

Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry. 

 

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Think carefully before securing other debts against your home, your home may be repossessed if you do not keep up repayments on your mortgage.

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We normally do not charge a fee for mortgage advice, however this is dependent on your circumstances. Our typical fee would be £500