Tracker Mortgage - Benefits & Comparison

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Tracker Mortgage - Benefits & Comparison

With the recent cut in interest rates by the Bank of England, tracker mortgages have seen increased media and consumer attention. We highlight the benefits of a tracker mortgage, compare them to other types of mortgages and examine how they work.

What are the benefits of tracker mortgages?

The benefits of tracker mortgages are that when interest rates start to fall, so do the monthly repayments on the loan. Interest rates can move both ways, however, so repayments can also stay the same or go up. Any change in interest rate is usually passed on to borrowers on tracker mortgages within 30 days.

How does a tracker mortgage differ from a discount mortgage?

Discount mortgages, another type of mortgage product, is linked to the lender standard variable rate. Lenders standard variable rates (SVRs) are usually set several per cent higher than Bank of England base rate.

A discount rate is usually set slightly below lender SVR. When the Bank of England cut interest rates, mortgage lenders will usually lower their standard variable rate, but in practice this doesn’t always occur.

What is the difference between a tracker mortgage and a fixed-rate mortgage?

A tracker mortgage is a flexible rate – it varies depending on Bank of England base interest rate. A fixed-rate mortgage is set for a certain period. Whether a tracker mortgage or fixed-rate mortgage is more competitive will depend on the mortgage market.

Am I the right type of person to get a tracker mortgage?

Tracker mortgages can be taken on during a time of low interest rates, and offer seriously competitive mortgage deals. Borrowers looking for a cheap initial monthly repayment rate can choose this type of mortgage loan. However, borrowers on tracker mortgages need to be prepared for their payments increasing at a later date.

What do I need to remember about tracker mortgages?

In the current mortgage market, tracker mortgages, like most other mortgage loans, will attract arrangement fees. Borrowers need to calculate how this affects the competitiveness of their loan. For borrowers who take out a tracker mortgage, interest rates will be set at a certain amount for a set period.

Lenders sometimes specify that they reserve the right to stop tracking should rates fall below a minimum. This type of tracker mortgage collar is one thing to be aware of.

Borrowers seeking tracker mortgages also need to be aware of compulsory insurance and fees known as early repayment charges.