When the Bank of England started to cut the base rate of interest on homeowner loans last year and continued to cut them to their lowest level in history earlier this year, an extremely high proportion of borrowers looking for a new homeowner loan opted for a fixed rate loan in the belief that they would be able to lock into a low rate of interest which would protect their monthly loan repayments once the base rate started to increase again.

But the latest figures from the independent mortgage loan brokers, John Charcoal, suggests that borrowers are starting to move away from fixed rate loans in favour of discounted and tracker loans.

With the Bank of England extending its programme of quantitative easing and talk of a slow economic recovery in the UK, it looks increasingly likely that interest rates on loans will remain at a very low level for another two or three years yet and this has caused many borrowers to rethink their position on fixed rate loans. Lenders are currently offering some extremely attractive discounted and tracker loan deals, whilst at the same time placing a high premium on fixed rate loans.

This variation in rates can make a huge difference to a borrower’s monthly repayments and many are making the decision to opt for a variable rate cheap loan instead of fixing their repayments.

One way to reap the benefits of both options is to take out a variable rate cheap loan and make overpayments each month to the level of the fixed rate option. By this method, a borrower is able to maintain their repayments at the same level if interest rate were to rise, but in the meantime they are benefitting from overpaying on their loan, thereby reducing the outstanding balance and shortening the remaining loan term.