My Savings On Mortgage Payments Since Interest Rates Have Fallen

I suspect a lot of homeowners on tracker and variable rate mortgages have made significant savings over the previous months as interest rates have been tumbling. I have definitely saved a lot of money on a monthly basis. However, in real terms, I’m probably losing more money than I’m saving, as house prices are taking a nose dive. But that’s a whole other issue. I’m actually going to briefly talk about how much my mortgage payments have fell by.

I have three mortgages; two of which are on variable rates, and one which is on a fixed rate. Obviously, I didn’t make any savings on the fixed rate mortgage. However, the other two…

Mortgage 1

My first mortgage is a repayment plan with Birmingham Midshire. I’ve never been on a fixed rate with this mortgage, it’s always been variable. I took out the mortgage in October 2005, and my monthly payments were £782. At the time, the UK base rate was 4.5%. Payments reached its peak in September 2007, when the UK base rate was 5.75%, consequently I was making payments of £880 per month. And now, the UK base rate is 1.5%, and my monthly payment has dropped to £620. So from peak to current nadir, I’m making a monthly saving of £260. That’s pretty substantial.

Mortgage 2

Second mortgage is with Northern Rock (hah). Again, it’s repayment. I took out the mortgage in March 2007, when the UK base rate was 5.25%. At the time I was on a 2 year fixed rate deal. My monthly payments were £711. I came off the fixed rate in December 2008. I got a letter from Northern Rock in September 2008, informing me that in December I would be coming off the fixed rate consequently going onto their standard variable rate (7.49%), which would take my monthly payments up to £855. During this time the UK Base rate was 5%. But then by the time December came along, the good Lord struck and reduced the base rate to 2%. So the standard variable rate was no longer 7.49%, but 5.84%. Now, after further reductions, my rate is 5.34%, making my monthly payments £607. Ultimately, I was expecting to pay £855, but thankfully I’m paying £607. That’s a £248 monthly saving.

Overall Savings

I’m saving myself £508 per month thanks to the UK interest rate reductions.

Next Steps

1) I have a feeling interest rates will drop again in the coming months, which will hopefully have an impact on mortgage deals. I plan on remortgaging my Northern Rock plan with another lender. At the moment I could remortgage and get a much better deal than 5.34%, but I’m going to hold out because I think there’s still room for further reductions. Once I spot a good deal, I’ll hook onto it and try to secure a long-term fixed rate deal.

2) My rental income covers my mortgage monthly payments quite substantially, so I have excess cash each month. I don’t plan on saving that cash, I plan on making mortgage overpayments. My personal belief is that it’s best to reduce debt while debt is cheap, especially in this climate when house prices are falling, and negative equity becomes a reality for homeowners everyday. It’s inevitable that interest rates will eventually increase again, so debt will get expensive again. What I need to do is calculate how much I want to overpay for each property, and then inform my lenders.

Anyone else made killer savings?

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2 Comments- Join The Conversation...

Guest Avatar
John Peden 20th January, 2009 @ 15:20

Good work, I like the way in which you have presented your findings. Keep it up. I've included your blog in my latest post "The Top 32 UK Property Blogs".

1
Guest Avatar
Slaughter 29th April, 2009 @ 01:25

Don't you get it yet ??????

>>> One of the reasons interest rates are so low is that assets such as houses are depreciating in value.

If house prices are rising, you are forced to pay a price for your gains. When they are falling, banks are grateful just for the repayment of principal. <<<

Source:
http://tinyurl.com/independent-article

2

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