What is a tracker mortgage?
Tracker mortgages are tied to a benchmark interest rate, which means that when the benchmark rate changes, the interest rate on your mortgage changes too. This can result in lower monthly mortgage payments if the benchmark rate falls, or higher monthly payments if the benchmark rate rises.
What are the pros of a tracker mortgage?
- Often lower rates than fixed rate mortgages
- Usually more flexible, with no early repayment charges if you pay off your mortgage early
- If the benchmark interest rate goes down, so do your mortgage payments
What are the cons of a tracker mortgage?
- Your interest rate can go up as well as down, meaning you don't have certainty over your future payments
- Tracker mortgages are sometimes harder to qualify for as lenders have to be sure you'll be able to afford future payments, which can increase
What does a tracker mortgage track?
Tracker mortgages are linked to a ‘benchmark’ interest rate, which is usually the Bank of England Base Rate, plus a margin of between 0.2% and 1.25%.
Tracker mortgage vs fixed rate mortgage
Fixed-rate mortgages, as the name suggests, have a fixed interest rate that does not change over a fixed period.This means that your monthly mortgage payments will remain the same, regardless of any changes with the Bank of England base rate or the standard interest rate set by your lender. However, fixed-rate mortgages typically have a higher interest rate compared to tracker mortgages, which means that your monthly repayments will be higher.
Eligibility criteria for tracker mortgages
To be eligible for a tracker mortgage, you need to meet certain criteria which is similar to all mortgage applications:
- You will need to have a stable credit score to be eligible for a tracker mortgage. This is because tracker mortgages are seen as a higher risk for lenders compared to fixed-rate mortgages.
- You will need to have a stable income to be eligible for a tracker mortgage. This is because lenders want to ensure that you can make your monthly mortgage payments.
- You will need to have a property that meets the lender's requirements to beeligible for a tracker mortgage. This may include factors such as the value ofthe property, its location, and its condition.
How to choose a tracker mortgage
When choosing a tracker mortgage, it is important to consider the following factors:
It is important to compare tracker mortgages offered by different lenders to find the best deal for you. This may include factors such as the interest rate, the length of the mortgage term, and any fees or charges associated with the mortgage.
It is important to consider the long-term financial implications of choosing a tracker mortgage. This includes considering the potential changes in the benchmark interest rate and how this will affect your monthly mortgage payments.
Tracker mortgages can offer lower monthly mortgage payments compared to fixed-rate mortgages, but they also come with a higher level of risk. It is important to carefully consider the long-term financial implications of choosing a tracker mortgage and to compare tracker mortgages offered by different lenders.
The best way of finding a tracker mortgage that suits your needs is to speak to a broker like us, give the office a call at 0333 090 3221 and we’ll be able to complete your tracker mortgage application, help you make an informed decision or answer any questions you may have.
