Do you want to avoid the hassle and cost of remortgaging? Would you like to save money when interest rates drop? Do you have a flexible budget for your repayments?
If so, a tracker mortgage might be the right mortgage for you.
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Tracker mortgages follow the Bank of England's fluctuating official interest rate (commonly referred to as the base rate). Your mortgage lender will charge you at a percentage above the base rate and your repayments will track any changes in this rate.
Therefore, if the base rate increases, your repayment for the following month will be higher. Likewise, if the base rate decreases, you will save money with a cheaper repayment.
The Bank of England's monetary policy committee meets on the first Thursday of each month to decide whether there should be any changes to the rate.
Lenders vary in how much they charge above the base rate. Usually you can secure a deal for no more than 1% above the base rate. However, complications from the credit crunch have forced lenders to raise their rates since they have less money to loan. You may face rates with a premium of 2% or more above base rate, especially if you are a first-time buyer or if you require a higher loan to value (a mortgage covering a greater percentage of your property) since the lender is at more risk offering these deals to these borrowers.
Since different lenders offer different rates, it is in your best interest to talk to a professional mortgage adviser to determine what kind of rate you can expect to receive by taking out a tracker mortgage.
Ideally never. If you are on a lifetime tracker mortgage, you will pay the same percentage over the base rate every single month throughout the entire course of your mortgage. You should never have to remortgage or take out another mortgage unless you decide to change your payment plan.
With base rate tracker mortgages, your lender can never change the percentage above the base rate you initially agreed upon. This is a big advantage over a standard variable rate mortgage where the lender tracks the base rate but can choose when (or whether) to increase or decrease your repayments in line with base rate changes. With a standard variable rate, the base rate may decrease but your lender can still charge you the same rate you were paying when the base rate was higher. Lifetime tracker mortgages protect you from this over the entire life of your mortgage.
If you had to remortgage every 2 years over a 25-year mortgage, you could be looking at an approximate £13,000 in arrangement fees. A lifetime tracker mortgage at a competitive rate can save you this big expense.
Once you set up a lifetime tracker mortgage, you can practically forget about your mortgage and simply focus on your repayments every month.
A discount tracker mortgage offers you a discounted rate for a specific period (usually the first 2-3 years of your mortgage). This works exactly like a regular tracker mortgage, but the discount rate usually falls below the base rate and can save you a lot of money during the discount period. When the discount period ends, you will be put on a standard tracker rate for the rest of your mortgage.
While discount tracker mortgages may sound less expensive than a lifetime tracker mortgage, you should take some factors into consideration before agreeing to a discount. When your discount period is over, lenders will charge you a higher percentage over the base rate for the remainder of your mortgage than if you initially signed up for a lifetime tracker mortgage. Additionally, there is a likelihood that you will have to remortgage after your discount period ends in order to secure a good deal.
Although a discounted tracker mortgage may sound appealing for the first few years of your mortgage, consider the long term financial impact of your decision. Speaking with a mortgage adviser will help you determine whether a discount tracker mortgage can save you money in the long run.
An offset tracker mortgage uses money you put away in an offset savings account to save money on your mortgage. Instead of gaining interest by keeping your money in a normal savings account, the money you put in an offset savings account reduces interest you have to pay for your mortgage.
Another benefit of setting up an offset savings account you also save money on tax. If you keep your money in a normal savings account, you have to pay income tax on any interest you make. However, if the money is in an offset savings account, it keeps you from paying more interest on your mortgage instead of earning taxable interest.
For more information, please see offset mortgages.
Yes. A flexible tracker mortgage usually allows you to make overpayments and underpayments or take a payment holiday (only permitted if you have made a sufficient amount of overpayments). These flexible features can greatly help if the base rate suddenly rises and leaves you with a tight budget.
Sometimes. Typically tracker mortgages have no early redemption charges (ERCs), which means you can easily change your mortgage without having to pay a fee. However, if you decide to change your mortgage during a discount period you usually will have to pay an early redemption charge.
Some lenders don't charge an arrangement fee while others do. Usually the arrangement fee affects the percentage you pay over the base rate. If you pay an arrangement fee, you may get a cheaper rate for your mortgage.
Some lenders offering tracker mortgages also offer remortgage deals with free legal expenses and free valuations.
Yes. At any time the base rate could rise severely. As a result, you would have to spend more on your repayments until the base rate dropped again.
There is no certain way to predict interest rates. Tracker mortgages are inherently riskier than fixed rates, but the benefit to that is that if base rates stay low, they could save you a lot of money in the end.
Someone with a flexible budget who is able and willing to make higher repayments if the base rate increases. A tracker mortgage is also ideal for someone who doesn’t want the constant hassle of following interest rates to determine when to remortgage.
You may also want to consider fixed rate mortgages (which provide a more secure repayment plan), variable rate mortgages (which are similar to tracker mortgages), discount mortgages (which save you money in the initial stages of your mortgage term), and capped mortgages (which combine elements of both fixed rate and variable rate mortgages).
Just fill in this short form and a mortgage adviser will contact you to answer all of your questions, give you tracker mortgage advice, and get you on your way to buying your home.
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