How to Reduce Mortgage Interest Payments
Offset Mortgage, Tracker Mortgage or Fixed-Rate Mortgage?
Apr 14, 2009
With the Bank of England setting interest rates at a 315 year low of just 0.5 per cent, there couldn't be a better time to reduce mortgage interest payments. In an interview with Sky News on the 6th March 2009, Bank of England Governor, Mervyn King stated that he saw little scope for further base rate reductions. Whilst the terms are now stricter, there are still a range of offset mortgages, tracker mortgages and fixed-rate mortgages available for homeowners.
How an Offset Mortgage can Reduce Mortgage Interest Payments
An offset mortgage involves offsetting savings against mortgage interest payments. For example, if a homeowner owes £200,000 on their home and has £75,000 in savings, they would only make mortgage repayments on £125,000 rather than the full £200,000. This means that the following mortgage repayments would be payable:
- Mortgage interest payments on a £200,000 offset mortgage at 5% APR are £833.33.
- Mortgage interest payments on a £125,000 offset mortgage at 5% APR are £520.83.
The offset mortgage allows a homeowner to reduce mortgage repayments by £312.50 pcm. This figure would be fractionally reduced by interest that is paid on personal savings, but most homeowners that have access to savings stand to save hundreds of pounds each month with an offset mortgage.
Fixed Rate Mortgage Vs Tracker Mortgage
A tracker mortgage currently offers homeowners the lowest mortgage interest payments because the Bank of England has set base rates at 0.5 per cent. However, interest rates will rise as the global economy improves. Homeowners seeking to keep mortgage interest payments low over a period of time are likely to find that a fixed-rate mortgage deal helps families achieve this objective.
How a Mortgage Broker Helps Reduce Mortgage Interest Payments
Homeowners choose a mortgage broker as they will trawl the market for the best fixed-rate mortgage, offset mortgage or tracker mortgage deal. This helps families to minimise the payment of mortgage interest as the entire market has been optimally searched. It must also be remembered that brokers charge a fee of up to 1 per cent of the loan amount for their services and this must be factored in when determining mortgage repayment savings.
Homeowners should wait until the end of their mortgage term to avoid having to pay an early redemption penalty. Saving money on mortgage interest payments is rarely achieved through a visit to the local bank. Families that don't want to pay a mortgage broker can use an online mortgage comparison service to find the best fixed-rate mortgage, offset mortgage or tracker mortgage deal and reduce mortgage repayments.
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