Mortgages: Tracker rate

Tracker rate mortgages

Tracker mortgages are directly linked to the Bank of England's base rate, so that you have the comfort of knowing you'll always be charged a reasonable rate.

Whilst the discounted and capped rate mortgages are both linked the mortgage lender's Standard Variable Rate (SVR) tracker mortgages leave out this middle man and track the Bank of England base rate directly. For example, your tracker mortgage rate may be set at 1% above base rate. The advantage here is that should the base rate be cut, you will benefit immediately as you don't have to wait for your mortgage lender to decrease his SVR. Of course, base rate rises are also reflected in your mortgage rate straight away, but then lenders usually aren't shy about quickly increasing their SVRs!

Like the discounted rate mortgage, you can't predict how much your monthly mortgage payments will be if rates rise, so trackers are not a good choice for those on a tight budget. However, if your finances aren't too stretched, tracker mortgages can be a great way to benefit immediately from any future interest rate cuts.

Length of discount

Consider how long the mortgage discount is offered for (typically 2,5 or 10 years).

Mortgage redemption penalties

Again, like fixed rate mortgages, capped mortgages tend to have redemption penalties should you try and switch or pay it off within the discounted period, you'll be slapped with a hefty fee. You also need to watch out for those extended tie-ins.

In addition, it's always worth reading the small print to find out how quickly any base rate changes are implemented with your mortgage.

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