A tracker mortgage is a type of variable rate mortgage where the interest rate automatically moves in line with a specified base rate, usually the Bank of England's base rate
. The interest rate on a tracker mortgage can change, meaning that your monthly payments could increase or decrease depending on the base rate
. Some key points about tracker mortgages include:
- Advantages : Tracker mortgages often offer lower initial rates than fixed-rate mortgages, and they can be more predictable than standard variable rate (SVR) mortgages, as the interest rate is linked to a publicly available rate
- Disadvantages : Tracker mortgages have the potential for your monthly payments to change, which could work to your advantage or not. If the base rate is low, the interest rate you pay on a tracker mortgage is usually different to the value of the rate that it is linked to, and some lenders may apply a collar rate, limiting the minimum level your rate can fall to
- Fixed-rate alternatives : If you want to budget effectively and know how much you'll be paying every month, a fixed-rate mortgage might be a better option for you. However, fixed-rate mortgages may have higher initial rates and may not be as flexible as tracker mortgages
- Lifetime tracker mortgages : These are rare but exist, and they last for the entire length of your mortgage. They can be risky, as they expose you to potential interest rate fluctuations throughout the mortgage term
In summary, a tracker mortgage can be a good option if you think the base rate of interest might fall, but it's essential to consider whether your finances could withstand an increase in your monthly payments. If you prefer a more predictable and potentially lower interest rate, a fixed-rate mortgage might be more suitable for you.
