Tracker Mortgage  

What is Tracker Mortgage?  

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. 

How does tracker mortgages work? 

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. 

What is needed for a tracker mortgage? 

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. 

Advantages and disadvantages of a tracker mortgage? 

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 

• When interest rates are lowering, tracker mortgages are the most appealing option. • They are straightforward, altering only when the central bank lowers or rises interest rates and  rising or falling in the same proportion as the base rate. 
• If the rate reduces, it may be possible to overspend on your revised monthly mortgage payment. • Even though your tracker mortgage is linked to interest rates, some programs include a rate cap  that cannot be exceeded. 

Disadvantages of tracker mortgages 

• Because a tracker mortgage is connected to base rates, if the rate it monitors rises, so will your  tracker mortgage rate and your monthly mortgage payment. 
• If interest rates rise faster than predicted and you wish to transfer mortgage products, you may be  charged an early departure fee if you do so before the fixed-term period finishes. • Some tracker mortgages have a ‘collar,’ or a rate that they will not fall below even if the central  bank reduces interest rates significantly; this means you may not profit from sustained rate  decreases. 

The benefits and drawbacks of tracker mortgages that we have discussed can help you decide which sort of  mortgage to choose.