Defining what a tracker mortgage is isn’t to hard at all. It’s basically a type of mortgage where the interest rate isn’t fixed from the beginning of the mortgage and is instead connected directly to the interest rate that the current Bank of England is showing. So if your interest rate at the Bank of England is 7% when you take out your mortgage and it rises to 9% a few years later than your mortgage interest rate would also go up 2% over that time. The same works in revese where if the interest rate drops, so does the rate on your mortgage.
Most people are drawn to tracker mortgages because they don’t need to refinance everytime the base interest rate drops which can save people a lot of money in refirnancing fees. The downside to this is the base rate could also skyrocket and end up costing the borrower a lot more money over the length of the mortgage. Banks do put a cap rate on the mortgages however which means that the rate can only increase so high before the rate tops out and stops effecting the mortgage.
If you ask people their opinion on the tracker mortgages, most will mention looking at a discount mortgage as another possible mortgage type. While this mortgage is very similar to the tracker mortgage, it has the disadvanteage of being connected to a base rate that is usually at least 1% higher than the tracker mortgage rate, making the tracker mortgage a better choice.
A mortgage lender will be able to help explain the key differences between tracker mortgage types. Tracker mortgages have variations in how the interest rate changes are applied to your loan and also for what length of time they are applied. Any compitent loan officer will be able to explain the details to help get you on the right track.
Whether you think a tracker mortgage is right for you or not, make sure you take the proper time to look around and see what else is out there. There might be a different mortgage that fits your needs better. A lifetime tracker mortgage could be a good option.
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