Which is the best tracker mortgage?

Looking for the cheapest tracker mortgage may not be as easy as you would think, taking into account fees, rates and economic climate. Speaking to a financial adviser before committing to a tracker mortgage is worth a call, as there maybe alternatives mortgages that you may not have considered.

 What is a tracker mortgage?

A tracker mortgage is a type of mortgage where the interest rate you pay is linked to an external rate, usually the Bank of England base rate. The lender also adds on a set percentage on top. The Bank of England Base rate is reviewed eight times a year, so a tracker mortgage has the potential to change eight times per year, although this is very unlikely.

Most lenders that offer tracker mortgage apply a collar, which is the minimum rate you will pay, regardless of what the Bank of England base rate does. Some lenders will also offer a cap, which is the maximum interest rate you will pay, although interest rates tend to be higher where a cap is offered, because of the security that comes with it.

How does a tracker mortgage work?

The Bank of England base rate is currently 0.75%. If, for example, a lenders tracker rate is the Bank of England base rate plus 0.75%, then the rate of interest you will pay on your mortgage will be 1.5%.

As a tracker mortgage moves in line with the Bank of England base rate, it is a type of variable rate mortgage and so the interest rate you pay could go up or down. It is therefore important to consider this when taking out a tracker mortgage, as you will need to be comfortable with the fact that you mortgage repayments could increase.

How long do tracker mortgages last?

Usually, tracker rates will be offered for a period of two to five years, although some lenders will offer lifetime trackers. As with fixed rate mortgages, long term trackers tend to come with a higher rate of interest as the lender is unable to predict which way the markets will go long term.

The amount of time you choose to have a tracker mortgage should depend on your individual circumstances and you need to be comfortable with the fact that the interest rate you pay will go up and down. If you are considering moving house or paying off your mortgage in the near future, make sure you select a deal with a time period aligned to this, as there may be early repayment charges on the tracker mortgage deal which could end up costing you thousands of pounds.

What happens when the tracker rate ends?

At the end of your tracker mortgage period, your lender will transfer your mortgage to their standard variable rate (SVR). The SVR is set by the lender and can go up or down at any time.

What other types of mortgages are there?

Fixed rate mortgage

A fixed rate mortgage is a type of mortgage which guarantees that the interest rate will remain the same for a fixed period of time. This can offer you peace of mind as you know exactly what your mortgage repayments will be throughout that period, as they are guaranteed to remain the same.

Standard Variable Rate (SVR) mortgage

If you have had a fixed rate mortgage and you are at the end of the fixed term, this is the type of mortgage that yours will turn in to. The interest rate on a SVR mortgage can be increased or decreased by the lender at any time and doesn’t necessarily follow the Bank of England base rate changes. Usually, if you have a SVR mortgage, it is a good idea to look at remortgaging to a better deal.

Discount rate mortgage

This type of mortgage is essentially like a SVR mortgage, but the lender applies a discount for a set period of time, usually around two years or so. If, for example, your lender offers a 1.5% discount, your interest rate will be 1.5% lower than the lender’s SVR. However, it will still increase and decrease in line with the SVR.

Capped rate mortgage

Things to consider before taking a tracker mortgage

Purchasing a home will be one of the most expensive things you will ever buy and so you want to make sure that you select the right mortgage for you. Even small differences in interest rates can save thousands of pounds over the long term.

Woodward Financials were awarded best wealth management firm in 2021 and again in 2022 and have a team of mortgage advisers ready to help you answer these questions and guide you through the right mortgage for you.

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