There are many different types of mortgage and it can be tricky to know which ones might be the best ones for you. To start with it is important to understand about the different types of mortgage and that will help you to know whether a certain one might be better for you than another. It might seem tricky but it can be broken down to make it easier. Firstly, you can pick between a fixed or variable rate. This sounds complex but all it refers to is the interest rate that you are charged. A fixed rate will stay the same for a certain period of time, usually up to five years. A variable rate can change at any time. A tracker mortgage is a specific type of variable rate mortgage and it can be good to find out more about it to see if will work for you.
What is a Tracker Mortgage?
As stated before, a tracker is type of variable rate mortgage. This means that the interest rate can change. However, the rate of interest will follow the base rate. The base rate is the interest rate that is set by the Bank of England. Therefore, if they put their rate up, then you will pay more and if they put their rate down, then you will pay less. This is different to a normal variable rate because it is the lender that decides when the rate goes up and down.
What are the Advantages and Disadvantages of Having a Tracker?
You may wonder why you would take out a tracker rather than a normal variable rate mortgage. Firstly, when you have a normal variable rate mortgage the lender can choose when to increase or decrease the rate. This means that they might increase the rate a lot, even if the base rate does not increase and they may choose not to decrease it even if the base rate goes down. This means that you will need to think about whether you want to take that risk. With the tracker mortgage, the lender will have to reduce the rate as soon as the base rate drops so you will immediately be able to take advantage of those low rates.
Of course, the tracker will also see the interest rates increase as soon as the base rates increase as well. With a standard variable rate, the lender may choose not to increase, although this is unlikely. It can be better to have a tracker if you predict rates will fall and perhaps would not be so good if you predict the rates will rise. It is vey hard to predict what might happen with the rates though but if they are unusually low, it is more likely that they will go up than down and if they are unusually high then it is probably more likely that they will go down.
Is it Right for me?
If you have decided that you want a variable rate, then a tracker could be a good idea. It is worth noting that you will have to pay a fixed percentage on top of the base rate. You will therefore need to check how much this is and decide whether you think that it is worth it. It will depend on what tracker rates and variable rates are around when you look, as to whether you think one or the other is better. Do check if you are tied into that lender, because if you are not, you can always switch which could be worth it if you find a better deal in the future.