Since  October last year, the Bank of England has lowered the base rate of interest charged on homeowner loans on several occasions, from 5 per cent in October to a record low level of just 1 per cent currently.

This has meant massive savings for many borrowers, particularly those who opted for a tracker loan. A typical homeowner with a loan of £100,000, who has benefitted from the full amount of the interest rate cuts, will have seen their monthly repayments reduce by more than £300, giving them a particularly cheap loan at the present time.

A number of banks and building societies have reported that a large number of borrowers in this position have used the recent rate cuts to their advantage by making overpayments on their secured loan. This has the effect of reducing a person’s outstanding loan balance much quicker than they would under normal circumstances and could reduce the term of their homeowner loan by a number of years and save them several thousands of pounds in interest payments.

The other advantage of this course of action is that those borrowers making overpayments now will be in a much stronger position to manage financially when interest rates eventually do increase once more, as they will not feel the extra burden of increased loan repayments and their outstanding loan balances will be significantly less than if they had not made any overpayments.

Banks and building societies are encouraging borrowers to take advantage of this opportunity wherever they possibly can do, as it is inevitable that interest rates will increase once again in the not too distant future. A spokesman for the Council of Mortgage Lenders (CML) also commented “Now is also a good opportunity for borrowers on interest only mortgages to switch to repayment mortgages to use this period of low interest rates to start to pay down their loans.”