The Bank of England last week cut interest rates again, this time by one percentage point to just 2% - the lowest for 57 years and the joint lowest in history. This third consecutive cut means that interest rates have fallen from 5% to 2% in just 3 months.
This latest cut is an early Christmas present to thousands of borrowers with variable rate mortgages who will see their monthly repayments drop even further. Someone with a £150,000 interest only mortgage will see their payments fall by £125 a month if they receive the full 1% cut.
It will also mean cheaper mortgage deals for people whose current deal is due to end soon.
The saving will be very welcome to some as the Christmas shopping period approaches, but these cuts also provide the opportunity for borrowers to make even more savings on their mortgage.
Tempting as it is to pocket the saving, if you keep your monthly mortgage payments at their original level, you are able to overpay and potentially save thousands of pounds in interest.
Someone with a £150,000 interest only mortgage repayment mortgage, now paying 3% following the latest rate cut, could cut their mortgage balance by over £55,000 over the term of the loan– leaving them just over £94,000 to pay.
Using the same figures, someone with a repayment mortgage could cut 3 years and 5 months off a 25-year mortgage term.
With property prices falling, overpaying on your mortgage also helps to maintain the equity you have in your home.
Another alternative is to use the savings to pay off more expensive debt such as personal loans or credit cards.