The tracker mortgage is similar to a discount mortgage, but a discount mortgage a mortgage lender offers the borrower a set percentage off of their Standard Variable Rate, whereas a tracker mortgage follows the set Bank Rate that is determined by the Bank of England. The tracker mortgage rate will be set a few percentage points above the Bank of England base rate. For example, if the Bank of England has a set rate of five percent, then a borrower will get a tracker mortgage at the Bank of England rate plus one percent. This means that the borrower has a tracker mortgage rate of six percent.
Lifetime Tracker Mortgages
There are a few lenders that offer borrowers the option of choosing a lifetime tracker mortgage. A lifetime tracker mortgage will track the Bank Rate for the entire duration of the mortgage by a guaranteed maximum percentage. A lifetime tracker mortgage can be beneficial to the first time buyer that wants assurance that their mortgage rate will not change or go up at an alarming rate. A lifetime tracker mortgage comes with a relatively small fee, and there are no usually ERCs (early redemption charges) attached to the mortgage. This means that there is not a penalty for early payment of the tracker mortgage.
The Discount Tracker Mortgage
A borrower has the option to choose a discounted tracker mortgage. An example of a discounted tracker mortgage would be that if a lender offered discounted tracker mortgages at the base rate plus 1.5 per cent for an introductory period of perhaps two years. Then, after this time period, it would revert back to two percent.
The Pros and Cons of a Tracker Mortgage
A tracker mortgage is a straightforward mortgage rate. Many people like the tracker mortgage option because the mortgage lender cannot influence the mortgage rate once the margin is set. The homeowner always knows exactly how much their tracker mortgage rate is. Another benefit to choosing a tracker mortgage is that one is able to switch straight out of a tracker mortgage without having to pay an early redemption charge. An early redemption charge is attached to the mortgage amount if the borrower pays the mortgage off early. There is no penalty for early repayment with a tracker mortgage. The only time that an early redemption charge will be attached is during the period of as discount on the tracker mortgage. A third benefit to a tracker mortgage is that this type of mortgage is simple for lenders to design. A tracker mortgage usually comes with lower fees then a capped, fixed or discounted rates mortgage. This is perfect for a borrower who has a set amount of income to work with.
There is one main disadvantage to choosing a tracker mortgage, the fact that the rate that the borrower pays back fluctuates directly in line with the base Rate, determined by the Bank of England. However, this is a similar proposition to the tracker mortgage rate, which is attached to the lender?s Standard Variable Rate and which can be altered at any time for commercial purposes. If you need to have the security of knowing exactly how much your mortgage payments are going to be each month, you might be better looking into a fixed rate mortgage.
If you'd like to speak with someone about possibly taking out a tracker mortgage, take a moment to fill out this short form and we will introduce you to an experienced mortgage adviser from the SimplyFinance network. This adviser will be able to talk you through the process and help you to find the best deals in the market for your financial circumstances.