Tracker mortgage rates change, which means you need to be aware of what happens when the base rate changes and how this impacts the monthly repayments We’ll explore this in detail below!
Tracker mortgages are variable-rate mortgages, which means that the interest rate can change. The mortgage will track whatever happens to the Bank of England’s base rate. If this goes up, your interest rates and monthly payments go up as well. If it goes down, then you’ll see a corresponding decrease in your repayments. Lenders will usually add on their rate margin on top of the bank of England base rate. For example base rate (currently 0.25%) + lender margin of 1% = pay rate of 1.25%.
Some lenders offer lifetime tracker mortgages, which means that the interest rate will track the Bank of England’s base rate for the entire life of the mortgage. This is in contrast to a standard tracker mortgage, which only tracks the base rate for a fixed period of time (usually two or five years). These are quite rare to find but there are some lenders that offer these types of rates.
There are three different types of tracker mortgages:
The end date for your tracker mortgage is written into your original mortgage offer with the lender. This will explain what happens at this point – either your mortgage will revert to a standard variable rate, or you’ll be moved onto a different tracker mortgage product such as a variable rate tracker.
At the end of your rate term, there are generally two options, which are to remortgage or product transfer. We contact you 5 months before your rate is due to expire so that there is plenty of time to ensure a new competitive rate is in place by the time your current rate finishes. Just like any other type of mortgage, early repayment charges may apply if you decide to pay off your tracker mortgage before the end of the agreed term. It’s important to check with your lender what these charges (if any) are. Tracker mortgages are more likely to have products that have no early repayment charges which can make them more flexible than fixed rates, that being said not all tracker rates are ERC-free.
Tracker mortgages can be time-consuming and difficult to compare product-by-product, so it might make sense for you to speak directly with a specialist mortgage broker who will recommend the most suitable tracker option after assessing your needs.
Momentum Mortgages are mortgage brokers based in Sevenoaks, Kent. We help people to buy, invest or remortgage property while reducing stress and saving time. We have helped clients all over Kent including Tunbridge Wells, Tonbridge, Maidstone, Swanley, Dartford, Bromley, Orpington and more.