Getting the most out of the latest interest rate cut

First time buyers and existing homeowners may do well to explore the options available to them in order to get the most out of the Bank of England's latest cut in interest rates.

Yesterday, the most attractive package available to first time buyers was a 5.69% two year, fixed mortgage deal from Cheltenham & Gloucester, which requires a deposit of 10%. By saving up as large a deposit as possible, prospective borrowers can reduce the amount they have to pay.

Homeowners who are currently on one of the less competitive fixed rate mortgage deals could consider changing lenders, as David Hollingworth of London & Country mortgage brokers explains: "You can always look at moving, but you have to work out the cost of leaving your current deal. Repayment charges can be as much as 3% of the outstanding mortgage."

The good news is that the price of fixed rate mortgages has been falling. Cheltenham & Gloucester are currently offering a two year deal at the fixed rate of 4.29%, with a 25% deposit to pay along with a fee of £2,094. For those who can afford a 40% deposit, the best deal is currently being offered by the Mansfield building society which has a fixed rate mortgage product set at 3.99% for two years, with a fee of £999 payable along with the deposit.

The most attractive option for borrowers who have little or no equity in their properties, could be switching over to their mortgage lender's standard variable rate (SVR) when their present deal ends. The cheapest SVR at the moment is 3.5% which is being offered by both Cheltenham & Gloucester and Nationwide.

For those homeowners who have found they have money to spare due to being on a tracker mortgage, they may wish to reduce the duration of their mortgage and the amount it costs by paying off the mortgage early, which most lenders permit without penalty. Those who are on an interest-only deal may wish to consider changing to repayment or part repayment in order to begin to reduce the amount of money owed.

Source: guardian.co.uk | Last updated: 8th January 2009

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