Are Tracker Mortgages Worthwhile?

There are quite a few different types of mortgages and it is a good idea to have a good understanding of them so that you can be sure that you will be able to pick the right one when you either buy a home for the first time or remortgage. A tacker mortgage is perhaps a type that some people may not have heard of and it is a good idea to have an understanding of what it is and then you will be able to know whether it is something that you want to consider. We all have different mortgage needs and so it is not easy to pick one mortgage as the best for everyone, we have to think about what we want and what fits best with that.

What is a Tracker?

A tracker is a specific type of variable rate mortgage. The rate of interest will have a fixed art, which will always remain the same and cover the costs of the lender and it will have a variable part which will be equal to the base rate. The base rate is the interest rate that is set by the Bank of England and it is reviewed every month, although it does not tend to change that often, it potentially can. It usually gets put up or down to try to have an impact on inflation. The government at the moment has a target of 2% inflation a year and the Bank of England uses various measures including interest rates to try to target that rate. Inflation is the measure of prices, so the government want them to rise but not too quickly so if they are rising too fast, interest rates will rise to try to make borrowing more expensive and saving more attractive and therefore spending will be reduced. However, if inflation is low, they will try to lower the interest rates to make borrowing cheaper and saving not so beneficial so people are more likely to spend.

When is it Useful?

If the base rates falls, then the interest rate on the tracker will have to fall and if they go up it will have to go up. With a fixed rate of interest it will not change at all and with other variable rates, they will tend to rise of the base rate rises but they may fall so quickly when the base rate goes down and they can be changed at any time so they may go up in between base rate increases. This means that a tracker mortgage rate is especially useful when you are predicting that the interest rates will fall as you will benefit from that fall in rates.

Who is it for?

It can be a risk and so if you cannot afford a higher payment on the mortgage, then it can be safer to use a fixed rate because you will know that it will not go up for a while. Fixed rates do not stay fixed forever though, so you need to be aware of when the fixed rate period will end and what you plan to do afterwards. A fixed rate could also end up being more expensive.  If you can afford to pay a bit more each month if necessary, then it could be worth going for a tracker rate as you will be able to see a reduction in interest rates if the base rate is lowered and you may not do so if you have a normal variable rate. Of course, if the base rate goes up, then you will start paying more immediately, but this is likely with any variable rate mortgage.

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