Tracker

A tracker mortgage follows the Bank of England base rate, they assess this monthly and adjust the rate to meet inflation targets of 2% per year. The Bank of England will increase the base rate if spending levels are high, this encourages people to slow down on their spending and to start saving. In contrast to this, if spending levels are low the base rate will get lower so that spending becomes increased, and the economy becomes wealthier.

Pros

If the base rate decreases, then your mortgage payments will also, to stay in line with the interest rate. When the rate does lower you may be able to overpay by paying the same amount you did at the higher rate level, this will help pay your mortgage off quicker or reduce the cost of your mortgage overall.

This type of mortgage can offer more flexibility if there are no early repayment charges on the chosen product, this allows you to make extra payments without being charged. If you are only living in the property short term then this type of product will benefit you as you aren’t fixed into a product term.

Cons

If the base rate rises then your monthly mortgage payments will also rise in line with this. Accurate budgeting with this type of mortgage can be harder as the base rate could change from one month to the next which means that you may have less disposable income than the previous month but you have to be prepared in case this happens.

If a tracker mortgage best suits your circumstances then here at LTC Mortgages we can take a look at this for you and weigh up your options after our initial discussion about what it is you are looking to do now and in the future.

Discount

A discounted product is similar to a tracker product in the ways that it tracks a rate that is able to fluctuate. However, a discount mortgage rate follows the lenders SVR (Standard Variable Rate), the lender can change the rate whenever they like as they don’t have to wait for the Bank of England base rate to alter. This mortgage is a discounted amount of the SVR that the lender is offering. Even if the base rate doesn’t change, lenders can still adjust their standard variable rates.

Pros

·        You may get a cheaper rate at the time of application

·        You will pay lower monthly payments than your lenders SVR

·        Lower early repayment charges

·        If the lender lowers the SVR, your payments will also decrease

Cons

·        Increased payments if the lender’s SVR rises

·        Difficult to budget accurately