Tracker Rate Mortgage
A tracker rate mortgage is where the lender links the interest rate they charge you to an external variable rate (normally the Bank of England base rate), for a specified period. These mortgages will often give you an initially lower interest rate than fixed rates, but will rise and fall with any prevailing changes in interest rates. This means that your required monthly mortgage payments could go up or down. The Tracker rate period can be for a limited time of 2, 3 or 5 years before reverting to the lenders Standard Variable Rate, however, some lenders will offer trackers that last for the lifetime of the mortgage.
Typically, the lender charges an arrangement fee to pay to secure a tracker rate mortgage. However, in most cases these do not need to be paid upfront and some lenders will offer fee free options. The lowest tracker rate mortgage will often have the highest arrangement fee and it is therefore essential that you have an adviser calculate what is the most cost-effective option for you.
Advantages
- If interest rates go down, so will your payments
- Introductory tracker rates can be among the lowest variable interest rate you can get.
- Introductory tracker rates can be less expensive for tracker mortgages in comparison to fixed rates.
Disadvantages
- If interest rates go up, your payments will go up.
- You might have to pay an early repayment charge if you switch before the end of a deal.