Tracker Mortgages - What are They and Should I Get One?
What is a Tracker Mortgage?
A tracker mortgage is a type of variable-rate mortgage. The interest rate essentially tracks an external base interest rate, which is most commonly the Bank of England’s base rate. This is in comparison to a Standard Variable Rate (SVR) mortgage, which is set by your mortgage provider.
A tracker rate is the base rate plus a certain percentage on top of it. This means that what you pay will often change from month to month. This is different from fixed rate mortgages, as they are a set repayment amount for the length of the deal.
Tracker mortgages have a similar term to fixed rate mortgage deals, in that they last somewhere between two to four years, though there are some that will last the duration of your mortgage (known as a lifetime tracker). It may be tempting to get a lifetime tracker but it can sometimes be problematic, as there’s no guarantee that the base rate will remain low for the entire lifetime of the mortgage.
How Often Does the Tracker Mortgage Rate Change?
Essentially a tracker mortgage repayment could change every month, but this would be unlikely. In 2022, for example, the Bank of England base rate went up five times, with inflation.
It is important to be aware that some tracker rates won’t drop even if the base rate goes down. This is because some have what’s known as an interest rate collar (AKA a ‘floor’), which is a minimum rate that it will go down to. This means that you will never reap the rewards if the base rate reduces. That’s why it’s worth going for a tracker rate that can go down as well as up.
What are the Advantages of a Tracker Mortgage?
- They are more flexible than fixed rate mortgages, as they can give you the opportunity to both overpay and under pay - or even repay early, without penalties.
- Tracker mortgages can be a great option because when interest rates are low, they can be less expensive than fixed rate alternatives.
- Your tracker mortgage may have a shorter term, than alternative options, which means you can remortgage sooner, if you need to.
- There are some excellent introductory rates.
- Tracker rates can be easier to understand as they are based upon an external benchmark, meaning you can easily monitor any changes.
What are the Disadvantages of a Tracker Mortgage?
- If the base rate of the tracker goes up, your repayments will also increase, so they can potentially be more volatile than other options.
- If you like to be able to plan your finances more accurately, tracker rates can make it slightly more challenging as you can't specifically predict what the rate will be.
- If there is a floor, or collar on your mortgage, you won’t benefit if the base rate reduces.
- If you plan to move or refinance during the term of the tracker, than another option might be more suitable.
- As with any deal, you will have to pay early repayment charges if you decide to switch mortgages before your tie in ends.
Why Should I Get a Tracker Mortgage?
Tracker mortgages can be an excellent option for first-time buyers, or when you need to reduce outgoings, as when the base rate is low, it will keep repayments low. Though it is worth going for a deal with a cap because you’ll know that you’ll be able to make payments up to whatever the rate is capped at.
How Can I Get a Tracker Mortgage?
We understand that tracker mortgages can be confusing and finding a great deal can be a challenging process. Contact the team at Transparent Mortgage Services and we will find the perfect tracker mortgage deal for you.