Are Tracker Mortgages Worth It?

By Author: Peter Kenny
Total Articles: 38
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Tracker mortgages are one of the most common types of mortgage around, but they can be confusing if you are new to the mortgage world. Tracker mortgages have a number of benefits as well as dangers, and it pays to know about these before shopping around. If you are looking for a mortgage then here is some advice about tracker mortgages and if they are right for you:

What is a tracker mortgage?

A tracker mortgage is fairly similar to a normal variable rate mortgage, although the variations in interest are much quicker. A tracker mortgage follows the base rate of interest imposed by the Bank of England; any changes in the rate will be reflected in your mortgage payments. Whilst variable rate mortgages usually take months to change, tracker mortgages will change rates within 14 days of a new rate being announced. This means that you can more quickly benefit from any drops in the rate. The change is compulsory, and part of the contract of a tracker mortgage will state that the interest rate must change in accordance with the Bank of England within a certain timeframe.

What are the advantages?

The obvious ...
... advantage of a tracker mortgage is that if the interest rate drops, then your payments will drop within a few weeks of the change. This means your mortgage stays competitive and is always in line with the current market level. This mortgage is great for people who want their mortgage to reflect the changing costs of borrowing, but also don't mind if their repayments fluctuate.

What are the problems?

The problem with a tracker mortgage is that if the interest rate rises, you will be left with higher payments almost straight away. If you are on a budget then higher payments could leave you in financial difficulty and unable to make your repayments.

Types of tracker

There are a number of types of tracker mortgage. The first type is the tracker mortgage that simply follows the base rate changes for the entire mortgage term. The second is one that runs with the base rate for a while before return to a standard variable rate, and the third is one that has a limit on how far the tracker rate can change. Finding the best type for you requires shopping around and looking at your circumstances in detail.

Who should get a tracker mortgage?

A tracker mortgage is good for people who can cope with fluctuations in payment, and so can afford to take the risk that the payments will rise in exchange for the chance that they will get lower. You should look at your financial situation rather than trying to predict the future interest rate. If you can afford higher payments at some point then you could benefit from low interest rates, and so pay less for your mortgage.