Tracker Mortgages

What is a Tracker Mortgage?

A tracker mortgage is a type of variable mortgage that tracks the Bank of England base rate. This means your monthly payments can go up as well as down.

So for example, if the base rate is very low, then a tracker mortgage may be a good option, however, your rate can fluctuate in line with base rate changes which will have an impact on your monthly mortgage payment.

How do tracker mortgage payments work?

A tracker mortgage is a variable rate mortgage, which tracks the Bank of England base rate, usually above a certain percentage amount. For example, if your rate tracks the Bank of England base rate which is currently 0.50% by an extra 0.50%, the interest rate you will pay is 1.00%. If the Bank of England base rate increases by 0.50% to 1.00%, then the interest rate on your mortgage will be increased to 1.50%.

Advantages of a tracker mortgage

Tracker mortgages are often a good choice when the Bank of England base rate is low.

Some tracker mortgages also have a cap, this is where the rate on the mortgage is capped and will not go above a certain interest rate.

Some tracker mortgages don’t have any early repayment charges, which can be beneficial if you want flexibility to make unlimited overpayments or redeem your mortgage fully.

Disadvantages of a tracker mortgage

Some tracker mortgages have a floor rate, this means that the rate will not go below a specified rate.

You will not have the stability offered by a fixed rate product, your mortgage payments may rise as the result of an increase in the Bank of England base rate.

Leaving your tracker product could incur a fee should your product have an early repayment charge for switching products.

What happens when your tracker mortgage ends?

Tracker mortgages often offer an introductory rate for a limited period of time. If your tracker has an introductory deal you are usually transferred to a standard variable rate (SVR) at the end of the introductory period. This will typically have a higher interest rate, meaning that your monthly repayments will increase.

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