Tracker Rate Mortgage

The tracker rate mortgage has been around for a long time and remains a popular choice for homeowners. It’s another variant with interest rates being the primary concern.

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A tracker rate is designed to follow the base rates of the Bank of England. Your mortgage lender will specify either that the repayments stay in line with the Bank of England’s own interest rates, or that they follow an agreed margin.

You could, for example, find yourself paying the Bank of England’s base rate plus the lender’s margin of 1%. If the current base rate is set at 5%, you’d be expected to pay 6%.

The Bank of England rarely lingers on its rates though. They’re notorious for skipping up and down and as such, you can find yourself paying different sums on a month-to-month basis. If the base rate rises to 5.5%, your tracker rate will also rise (to 6.5%).

Some lenders will offer an exact tracker of the Bank of England’s base rates, while others will work on the extended margin. Whatever the case, you should be prepared for the worst. A tracker rate is potentially volatile in the sense that the interest rates could rise unexpectedly and throw a spanner in your financial works.

Homeowners across the land are entitled to hope for the opposite. If the Bank of England’s base rates fall, so does the interest on mortgage repayments. This is a nice situation to mull over, but somewhat unreliable.

There is absolutely no way of predicting which way the interest rates are going to swing. So if you’re working on a tiny margin between an affordable mortgage and severe debt, you should carefully consider your options. Do you want to be going through life with a budget that you can’t plan for?

There are several varieties to the tracker rate mortgage, including a discounted tracker rate. This is normally used to attract first time buyers. Lenders will state an increased margin to be discounted from their standard rates and the homeowner will receive a short-term period of relaxed repayments.

It doesn’t last forever though, and it can be pretty inconvenient if you sign up for your discounted rates only to have the Bank of England increase the base rate and render it useless. Certainty is by no means guaranteed where the tracker mortgage is concerned.

You can also find tracker mortgages where the base rate correlation only lasts for a specified term. After the tracking period is over, you will revert to paying the lender’s standard rates. This is less common since it doesn’t make a whole lot of sense to commit to fluctuating rates for a short term period only. Unless of course, you hope to make the most of a lower base rate without the risk of a huge rise in the long term.

Whatever your motive, it’s a wise idea to budget in line with the unpredictable nature of the tracker rate. Leave yourself a healthy margin for inflated interest. On the plus side, if interest rates rise unspeakably high, at least we can expect to make some back in our savings accounts!

Find the latest tracker rate mortgages by visiting our
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