Is A Tracker Mortgage For You?

Tracker mortgages differ from your typical fixed rate mortgage in one very fundamental way. On a fixed rate mortgage your mortgage is based on the interest rate at the time you took out the mortgage with the bank, where as a tracker mortgage is based on the current interest rate at the Bank of England. That means that your mortgage interest rate varies over the months and years as the current interest rate does and it’s not a fixed number from the beginning.

The biggest advantage of tracker mortgages is also it’s biggest disadvantage. People hope that over time the base interest rate will drop, thus passing that lower interest rate on to their mortgage and saving them a considerable amount of money over the course of the mortgage. The opposite could happen however and the base rate could slowly increase, thus making the mortgage payment go up and costing the borrower a lot more money over time.

The discount mortgage is the other popular mortgage type that you see when seeing which type is right for you. While the discount mortgage is similar with it’s variable rate, it’s attached to the lender standard variable rate instead of the Bank of England. This base rate is usually a bit higher giving the advantage to the tracker mortgage. Both are still a risk however as the rates could increase over time causing a higher payment.

Tracker mortgages fall into two types. The first works by having the interest rate vary the entire length of the mortgage. The second varies in the same way until a certain date and then returns to the original rate as set by the lender at the date the mortgage was written. Both have advantage and disadvantages and your mortgage broker can help show you the details between them.

Hopefully someone you know has used or can point you in the right direction for finding a mortgage broker. Mortgage brokers are very helpful at explaining some of the details that make the decision on what type of mortgage to get much easier.

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