What is a tracker mortgage?
There are thousands of mortgage products available on today’s market, and knowing which one is right for you can be a real headache. However, they generally fall into one of two camps – fixed or variable.
Tracker mortgages are a kind of variable mortgage which usually tracks the Bank of England base rate at a certain percentage above or below it.
Tracker deals are usually offered for an introductory period of between 2 and 5 years, after which you will be moved on to your lender’s standard variable rate. Some lenders offer a lifetime tracker, which tracks the base rate for the whole duration of your mortgage.
What are the advantages?
- The main attraction of a tracker mortgage is that if the base rate goes down, your monthly payments will reduce too. If the base rate is low, you will pay less than you would have if you’d locked into a fixed rate mortgage.
Of course, the opposite also applies. If interest rates go up, you’ll be faced with the prospect of higher monthly payments.
What are the drawbacks?
- Introductory deals usually charge repayment penalties if you want to leave your mortgage early, and these can run into the thousands. Lifetime trackers may not charge early repayment fees, but make sure you read the small print before signing on the dotted line.
Is it for me?
Before committing to any kind of variable mortgage, ask yourself whether you’d be able to afford an increase in your monthly repayments. If you’re comfortable with the prospect of fluctuating payments, then a tracker mortgage could be a good option. If you’re on a budget and would struggle to make higher monthly payments, a tracker deal may not be for you.
Many people prefer to know exactly what their mortgage payments are going to be, month after month. If this sounds like you, opt for a fixed rate mortgage. Your monthly payments will remain the same for the duration of your deal, which can make it easier to manage your money.
Or if you don’t mind the idea of a variable rate mortgage, but want to limit your monthly payments, think about a capped mortgage. Your payments can go up or down along with the base rate, but they won’t rise above a certain ‘cap’.
Everyone’s circumstances and personal preferences are different. If you’re not sure which kind of mortgage is right for you, it’s worth finding a good, Independent Financial Advisor to talk you through the options in more detail.