With similarities to a Standard Variable Mortgage (SVR), a tracker mortgage ‘tracks’ another rate; primarily the Bank of England base rate. This means that if the base rate rises, so will your mortgage payments, on the plus side, if the reduces, that’s money in the bank – your bank!
Each mortgage lender has its own SVR, but a Tracker mortgage is linked to an external interest rate, rather than that of your chosen lender.
You may find that some Tracker mortgages have an interest ‘collar’ – this is the lowest interest rate you will pay, meaning your rate won’t fall below a certain level, even if the base rate does.
It’s something to be conscious of, and something we would be sure to investigate prior to advising this type of mortgage.
At the other end of the spectrum, the mortgage may also be ‘capped’, stopping your interest rate from going over the agreed limit.
As with most mortgage terms, Tackers are generally available over two, three, five or ten-year periods, at the end of which, your mortgage would normally switch straight to the Lender’s SVR.
With everything, there are pros and cons – this can be a great option when the interest rate is low, more so if it falls even further, but as the rate is variable your payments could easily go up, and if your mortgage isn’t capped, then there is no limit as to how much by