The Tracker Mortgage Explained

Unless you are a financial guru or happen to work in the industry odds are that you don’t know what tracker mortgages are. The best tracker mortgage definition is a similar type of mortgage to the variable rate mortgage, but one that updates far more frequently, and one that follows the rates set forth by the Bank of England. If you happen to like the system set forth by the variable rate mortgages then you will likely appreciate the beauty of tracker mortgages which work the same way but within a much smaller margin.

A tracker mortgage is required to kick in within fourteen days of the change in interest rate, as explained, set forth by the Bank of England. With a variable rate mortgage this can take up to a year to reflect in your interest rate and so you may not see some of the low interest rates throughout the year. What this means for you is that you will see your monthly payments go up and down quite frequently throughout the year with a tracker mortgage. This can be beneficial at times, but you could also see your payment go up higher than you want it to.

One thing to keep in mind as you research tracker mortgages is that anytime you make a deal on a tracker mortgage there will be an automatic profit margin already calculated for the bank. This can be seen in the difference between the base rate and the rate of interest charged so make sure you take a look at the arrangement fee. For instance, a tracker mortgage with a base rate of 2 percent may have a 3.39% rate which is 1.39 above, or for a three year it may be at 3.79% or 3.89% which is nearly 2% above the base rate.

The best tracker mortgages are set up to meet your own personal requirements but one major advantage is that these rates are based off of the Bank of England rather than a lender’s SVR, which they can change at will. If you are trying to decide between a discount mortgage and a tracker mortgage then we almost always recommend the tracker mortgage but as I said it depends upon your specific needs. Look online and shop around for the best tracker mortgage rates as well, and get a wide view of the market before deciding which type to go with.

As there are with anything that has pros, there are some cons to working with tracker mortgages. For one thing, there is the arrangement fee that the bank charges for getting you set up with a loan. You need to figure out if you want to pay this fee or go with the Standard Variable Rate. Also, tracker mortgages can be hard to predict and if high inflation raises prices then you could see a bunch of raises in your interest rate in a row. Talk to your financial adviser and find out if a tracker mortgage is for you.