Choosing a Tracker Mortgage for your New Home

There are various mortgage types in the UK but choosing which is best for you is a very specific decision. Research is essential, which is why we are here to break down what’s available so that you can determine the best choice for your financial situation. This week, we shall continue with our series by explaining how a tracker mortgage works and whether it is the best decision for you.

Tracker mortgages

A tracker mortgage is a loan with an interest rate that is based on an external rate and a set percentage too. In most cases, the external rate is the Bank of England base rate.

So, if the base rate is 0.75 per cent and the interest rate was +1 per cent, the interest on your tracker mortgage would be 1.75 per cent. In the event of the base interest rate rising, your interest rate would do the same.

As a tracker mortgage is a type of variable-rate mortgage, the total you pay each month may be subject to change. With each monthly repayment you make, some of that money will go towards the interest that your lender has charged. The remainder of that repayment will go towards paying the money you initially borrowed. Therefore, if your monthly payments increase due to a rise in the best rate, the extra money you pay will only cover the increased interest charges. In other words, you will be paying more each month without clearing the debt of your mortgage.

What happens when your fixed-price deal ends?

Once your tracker mortgage reaches an end, your lender will then transfer you onto its standard variable rate (SVR) mortgage – just as they would in a fixed-price mortgage. this means that you will then pay a higher interest rate. On top of this, your monthly repayments will increase.

The pros of tracker mortgages

If the base rate declines, the monthly repayments you make will also drop. However, please note that this is unlikely to happen given the current market. Your interest rate is only affected by the changes that occur with the Bank of England base rate, not the changes to your lender’s SVR.

Some tracker mortgages do not come with an early repayment charge. If you plan to re-mortgage or move to a new house, you may find this to be beneficial.

The cons of tracker mortgages

Throughout the deal period, you will not be able to know for certain how much your repayments will be.

It is rare to come across a capped deal. If your tracker mortgage does not come with a cap, there is no limit to what you could be paying in the event of the base rate rising.

If you were to choose a deal that comes with early repayment charges, it could cost thousands if you wish to re-mortgage or pay off your mortgage early.

Finding the perfect property with the perfect mortgage

While you are looking for your ideal mortgage, you will also be looking for the perfect home. If you are in search of a property in the Heaton’s but you don’t know where to begin your search, Joule’s Estate Agents can help. We can help you find the perfect home in the area, so get in touch to learn more.