You may have heard of a tracker mortgage and may even have considered getting one. However, it s not a really popular type of mortgage. This means that you might feel reluctant to get one. It is a good idea to find out about them though as you could find that you are missing out on something that is well worth having.
What is a Tracker Mortgage?
There are two main types of mortgage – variable and fixed rate and a tracker is a variable rate mortgage. This means that the interest rate can vary. With a normal variable rate mortgage the lender will choose when to choose the rate and the can put it up or down at any time. They are probably more likely to put it up though! With a tracker rate the rate will change with the base rate. This means that if the base rate goes down, then the mortgage will go down by that amount right away. This will also happen if the rate goes up. There will also be a fixed fee part of the mortgage so the interest rate might be something like 1.5% plus the base rate.
Advantages of a Tracker Mortgage
A tracker mortgage can be a really good thing to have if you feel that the interest rates are likely to fall. If they fall you will be able to take immediate advantage and pay less. If you have a standard variable rate mortgage there is no guarantee that the lender will reduce the rate that you have to pay and so you could end still paying the higher rate. If the rates go up a standard variable rate mortgage lender is very likely to put their rates up anyway and you will pay more if you have a tracker mortgage.
Disadvantages of a Tracker Mortgage
The fact that you will definitely pay more if the rates go up could be something that will put off some borrowers. It can also be a more expensive way to borrow if the fixed part of the interest rate is high, it is therefore important to compare it to other mortgage rates to make sure that you think that it is competitive. You also might not like the fact that the rate can change. A rate that goes down is not a concern for anyone, but if it can go up, this could be a problem for some people. If you can barely manage to cover the cost of the mortgage as it is and then the rate goes up, then you could really struggle. This means that some people will just prefer to have a fixed rate and then they will know exactly how much they will need to repay.
So, you will have to think about whether you think this sort of mortgage will be right for you. It will depend on whether you want the security of a fixed rate and whether you like to have a normal variable rate or would rather track the base rate. You also will need to compare the costs, remembering that this will vary between lenders. It can be quite a tricky decision to make, especially as it can partly depend on whether you can predict what the interest rates will be. If you think rates are likely to fall then it can be more beneficial to get this sort of mortgage compared to if you think interest rates will rise. So, take a look at the rates being offered by different lenders and compare them, consider what you think will work for you and that should help you to make the right decision.