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 and cons of tracker mortgages

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.

What is a tracker mortgage?

A variable-rate mortgage that is tied to an external interest rate is called a tracker mortgage. This differs from the standard variable-rate mortgage (SVR), where the lender sets the interest rate without regard to external factors. The interest rate on a tracker mortgage is subject to change as the external interest rate increases or decreases. This type of mortgage is different from a fixed-rate mortgage, which has a set interest rate for the entirety of the fixed term.

Although interest rates on tracker mortgages can change, they are generally cheaper than those on an SVR mortgage. Additionally, the interest rate on a tracker mortgage is more predictable than an SVR mortgage, which can fluctuate at the lender's discretion. Typically, tracker mortgage deals last between two to five years, but it is also possible to obtain a "lifetime tracker" that lasts for the entire mortgage term. It is important to consider the risks associated with a lifetime tracker, as low interest rates cannot be guaranteed indefinitely.

Although the potential for mortgage payments to change each month does exist, it is uncommon. The choice between a tracker or fixed-rate mortgage depends on individual circumstances, which is why consulting with a mortgage broker is important in making an informed decision. Ultimately, it is necessary to weigh the advantages and disadvantages of each option before committing to a mortgage deal.

For more information on the different types of mortgages see our page here

If you are looking for a mortgage and would like to discuss your options, contact us today at 0151 662 0188 or email [email protected].