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Tracker mortgage
The interest rate on a tracker mortgage is linked to the Bank of England base rate. So if the base rate changes, your mortgage rate will change.
The base rate is currently 0.50%, so if you took a tracker mortgage with a rate that is 2% above the base rate you’ll be paying an interest rate of 2.50% . If the Bank of England put the base rate up to 1%, your mortgage rate would increase to 3.00%. This would add about £25 a month to the repayments on a £100,000 mortgage.
As with fixed rate mortgages, trackers are available over different terms: most commonly two or five years. With these deals, you’ll be charged a penalty if you want to get out of the mortgage during the term.
You can also get lifetime, or term, trackers and these are often completely penalty free so they are very flexible and can be a great option if you don’t want to be tied into your mortgage.
The base rate is currently 0.50%, so if you took a tracker mortgage with a rate that is 2% above the base rate you’ll be paying an interest rate of 2.50% . If the Bank of England put the base rate up to 1%, your mortgage rate would increase to 3.00%. This would add about £25 a month to the repayments on a £100,000 mortgage.
As with fixed rate mortgages, trackers are available over different terms: most commonly two or five years. With these deals, you’ll be charged a penalty if you want to get out of the mortgage during the term.
You can also get lifetime, or term, trackers and these are often completely penalty free so they are very flexible and can be a great option if you don’t want to be tied into your mortgage.
Advantages
The rates on the leading tracker mortgages tend to be lower than on fixed rate deals.
Although trackers are variable rate mortgages, it’s easy to understand what rate you’ll be paying because they are directly linked to the base rate. Therefore, the rate, and your monthly payments, will only change if the Bank of England changes the base rate.
Although trackers are variable rate mortgages, it’s easy to understand what rate you’ll be paying because they are directly linked to the base rate. Therefore, the rate, and your monthly payments, will only change if the Bank of England changes the base rate.
Disadvantages
You don’t have the same security with a tracker that you get with a fixed mortgage because the rate is variable. This means you have to be prepared for the fact that your monthly repayments could go up – and it’s really important to make sure you’ll be able to still afford your mortgage if this happens. If money is tight and you need to budget carefully, a fixed rate mortgage will probably be a better option.
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