Tracker mortgages are a combination of flexible payment options and an interest rate that follows, or tracks, the Bank of England base interest rate. Tracker mortgages can be very beneficial to borrowers, giving more control and financial freedom.
The reason for this is that the borrower has a large element of choice when it comes to making payments. You can pay additional amounts on top of your regular monthly payment. You can pay less than the regular monthly amount, you can even possibly take, what are known as 'payment holidays', all depending on your financial situation at any one time.
This type of mortgage has proved to be very popular with self-employed people or salesmen who work on a commission only. Therefore, they never were sure of how much they would bring home each month.
The tracker mortgage can possibly save a large amount of money in the long term. If you are able to make overpayments to your monthly mortgage bill, either as a one-off lump sum, or on a regular basis. These regular or one of overpayments, mean that your mortgage could have paid off earlier, saving many thousands of pounds in interest payments.
Payment holidays or underpayment months, are usually allowed after some overpayments have been made. This can also be a very useful feature, should you get into some financial difficulty.
Tracker mortgages Follow the Bank of England interest rates closely. This means, when the bank lowers its interest rates, then your mortgage interest will also go down. This is true of most mortgages; the difference there is that the change with the tracker mortgage is immediate.
The flip side to this is that if the bank were to raise its interest rates, it would mean that monthly mortgage payments would also increase. Because of this monthly mortgage, payments can go up or down on a regular basis. So you are never 100% sure of how much you will be paying each month. In addition, tracker mortgages have no cap ', or limit to how much they interest rates could go up.
Most tracker mortgages are only 'tracker' for part of the life of the loan; this could be anything from one year to ten years. After that, the mortgage will change into a regular or standard variable rate mortgage, known as an SRV.
A tracker mortgage can be a very attractive and useful way of paying a mortgage loan for a reliably short period. You should inquire what the lenders SVR is at the time you take out the mortgage. So that you may compare it to the rate of interest, you will be paying with the tracker. This will give you some idea of what you may have to pay when the mortgage reverts back to a SRV.
The interest rate paid on a SRV is not set by the Bank of England it is set by each mortgage company individually, so could vary significantly from one lender to another.
Tracker mortgages usually offer competitive rates of interest, you should consider if you would be able to make the payments if the interest rate were to be raised. The tracker mortgage is probably best suited to people who have a little like flexibility with how much they may be able to pay each month, should interest rates go down or up.
A good quality tracker mortgage should not have any early repayment charges, which can add up to 3% of the entire value of the loan. This percentage could be a very large figure running into several thousand pounds.
It is essential with tracker mortgages to not just consider the interest rate; you must consider every aspect of the loan such as, what fees may be charged. In addition, if you are paying a lower interest rate, what value the lender may put on the property you are buying. This is due to some of these lenders value properties at a lower rate, to limit the amount of money they lend, and therefore the amount of risk they have.
A good mortgage broker should be able to analyze all the details and spell them out and clear and easy to understand terms, allowing you to consider if a tracker mortgage can work for you at this time. Tracker mortgages are absolutely best suited to people who require flexibility in their repayments, and also have the ability to pay more should interest rate increase.