
Tracker Mortgages
A tracker mortgage will have an interest rate that follows a known source, commonly the Bank of England base rate, in addition to a percentage amount set by a lender. This will mean your overall interest rate can fluctuate through your tracker period. So, provided your tracker is linked to the Bank of England base rate, if the base rate increases, so does your interest rate and thus monthly payments. If the base rate decreases, so does your payments.
Tracker Mortgages In More Detail
So, as an example, if your mortgage is set at 1% above Bank of England Base Rate, and the base rate sits at 3%, your mortgage interest rate payable would be 4%. If the Bank of England Base Rate drops to 2.5%, your overall payable rate would be 3.5% (2.5% + 1%).
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Over time, the base rate has moved up and down, so there may be periods in time where your payments decrease due to lowered interest rates. But, there also may be period where it increases, and thus your payment increase. Therefore, it will not be the best option for somebody who wants security over their payments, and the knowledge and peace of mind of knowing they will not change for a set period, allowing you to budget accordingly.
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Trackers are commonly fixed for a period of 2, 3 or 5 years. Although less common nowadays, there are also lifetime tacker products, which will cover you for the full mortgage term.