Best Loans News

It is hard enough for anyone who may be looking for a new home owner loan at the moment to be accepted for the loan they require. But if they are accepted, they then face the dilemma of what type of loan to take out.

With interest rates on loans at their lowest ever level and a great deal of uncertainty over the economy of the UK in the foreseeable future, no one seems too sure of whether to take a fixed rate loan, or opt for a tracker loan.

Loan rates will increase at some point in the future, but that is just about the only thing which is certain. There is much speculation as to when the Bank of England will actually increase the base rate and therefore push up the monthly cost of paying a variable rate loan.

Many borrowers are opting for a fixed rate loan at the moment, as they can have the peace of mind that their loan repayments will remain static regardless of how the base rate performs. However, the cost of this comfort zone is that they are likely to be paying a higher rate than they would be on the equivalent tracker rate loan.

If someone takes a two year fixed rate loan, for example, and the base rate remains unchanged, they will have paid more than necessary in loan interest, without receiving any benefit for this.

However if someone opts for a cheap loan and decides on a tracker rate loan deal, they run the risk of their monthly loan repayments increasing within the two year period.

One solution to this problem is to opt for a flexible tracker rate loan, which allows the borrower to make overpayments. They can then overpay to the same level as the equivalent fixed rate loan deal, but with the benefit that they are reducing the loan balance and therefore the interest payable, all the time.

If interest rates do increase, then the borrower has the option of underpaying on their tracker loan to use up the overpayment credits they have accrued, by which time it could be likely that the initial two year fixed period of the loan would have expired anyway…just a thought!