Borrowers With Tracker Loans Not Overpaying
Since October last year, the Bank of England base rate of interest for loans and savings has fallen from 5 per cent to a historically low level of just 0.5 per cent.
Whilst those borrowers who opted for a fixed rate homeowner loan have seen no benefit to these reductions and many individuals with a standard variable rate loan have not seen the full benefits of these rate cuts, those people who had the foresight (or were lucky enough!) to take out a tracker deal on their homeowner loan will have seen their monthly loan repayments fall significantly, in some cases saving borrowers hundreds of pounds every month in interest.
Although interest rates are historically low, it is likely that they will increase again in the not too distant future and this presents a perfect opportunity for those borrowers with a tracker loan to overpay on their homeowner loan or mortgage and make a significant reduction to the outstanding balance once rates start to increase again.
However, new research from Unbiased.co.uk has shown that just over half of tracker loan customers are not actually making any overpayments on their loan at all. According to the research, 20 per cent have maintained their repayments at the previous level, a further 24 per cent are using the savings to repay other existing debts on personal loans and credit cards, but 19 per cent are using the savings for day to day living expenses and luxuries.
David Elms of Unbiased.co.uk commented on making tracker loan overpayments. He said “Such action would enable many thousands of borrowers to take years off their mortgage repayment term, or enjoy a greater level of repayment comfort down the line, should the economy take longer to recover. Our research suggests most tracker borrowers are not taking this action, however we’re encouraged by the large number who are using their repayment savings to erode their more costly credit card and personal loan debts.”
