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A tracker mortgage is a variable-rate loan in which the interest rate is linked to another rate. This rate is usually the Bank of England base rate, albeit the rate you pay will usually include a margin.
A tracker mortgage is a variable-rate loan in which the interest rate is linked to another rate. This rate is usually the Bank of England base rate, albeit the rate you pay will usually include a margin. A tracker mortgage is a house loan in which the interest rate moves in lockstep with another rate, most commonly the Bank of England base rate. As a result, if you think the base rate of interest may reduce or if tracker mortgage rates are currently low relative to other forms of mortgages, you might want to choose a tracker mortgage. However, interest rates on a tracker mortgage, like all variable rate mortgages, can rise as well as reduce. As a result, consider if your finances can manage an increase in your monthly mortgage payments if this occurs.
The Bank of England’s Monetary Policy Committee, which meets eight times a year to vote on the rate, determines the base rate. This means that the base rate could increase eight times per year (though this is quite uncommon); consequently, while estimating how much you can afford to pay back, you should account for the possibility of your rate increasing numerous times. Conversely, in some situations, a decrease in the base rate will result in a decrease in your interest rate. On the other hand, the greatest tracker mortgages frequently have a ‘collar’ (a minimum rate you can pay) set at the amount you are paying from the start.
Importantly, the interest you pay on a tracker mortgage is frequently different from the tracked rate. This is because tracker rates are often priced a specific percentage point above, or sometimes below, the rate to which they are tied. For example, if your tracker mortgage is set at a base rate plus 1.5 percent and a base rate of 0.5 percent, your monthly repayments will be based on a 2 percent interest rate. Your mortgage interest rate would increase to 2.5 percent if the Bank of England raised the base rate to 1%. Let us say you have a £200,000 mortgage with a 25-year term and a rate of 1.5 percent higher than the base rate. If the base rate is 0.5 percent, your tracker mortgage will have a rate of 2 percent, resulting in a monthly repayment of £848. If the base rate rises by 0.5 percent to 1%, your tracker rate rises to 2.5 percent, and your monthly payments jump by £49 to £897. This would cost you an additional £588 each year.
You will need to look at what each mortgage provider has to offer if you want to start looking for the greatest lifetime tracker mortgage rates for your situation. Unfortunately, because each lender calculates
their arrangement costs and other expenses differently, it cannot be easy to compare one product. Thankfully, comparison platforms can help you cut through the clutter and focus on what matters most.
Not only will comparison platforms allow you to evaluate various loan to value (LTV) ratios, but it will also show all similar plans side by side, allowing you to compare fees and other costs and determine which lifetime tracker mortgage is ideal for you. However, because not all lenders are featured on every comparison site, it is a clever idea to check a few to be sure not to miss anything.
As the name implies, a tracker mortgage rate tracks the Bank of England’s (BoE) base rate. The base rate is the Bank of England’s interest rate on cash held by commercial banks and building societies. The Bank of England evaluates the base rate monthly and adjusts it as needed to meet its target inflation rate of 2% per year, depending on external circumstances.
If you are unsure whether a tracker mortgage is best for you, weigh the benefits and drawbacks to discover if this sort of loan is a good fit for your situation and financial goals. While we always recommend speaking with an expert advisor to ensure you receive the best advice and mortgage rates available, this is to lay out some of the benefits and drawbacks of tracker mortgages.
As with all mortgages, tracker mortgages have advantages and disadvantages.
Advantages of tracker mortgages
Disadvantages of tracker mortgages
The benefits and drawbacks of tracker mortgages that we have discussed can help you decide which sort of mortgage to choose.